A prime broker is a large bank or broker-dealer that offers hedge funds a bundle of services: financing, lending securities for short sales, clearing and settling trades, holding assets, and reporting.
What the video says
In hedge funds, its borrowing, shorting and trading can all run through one bank. It's called the prime broker. Say a fund has a hundred million of its own. The prime broker lends it fifty million more. Now it can hold a hundred and fifty. It also lends the fund shares to sell short. It settles the trades, holds the assets, and reports the positions. It earns most of its money on that lending. And it holds the fund's collateral. In two thousand eight, when a big prime broker failed, some hedge funds couldn't get theirs back. So why do investors care? A fund's leverage, and its safety, can depend on that one bank. The trades are the fund's. The plumbing is the bank's.
In the glossary: Prime broker
A simple example with round numbers, not advice. Terms vary by fund.
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