Publicly available information on changes on the horizon is still at a high level at this stage, so it is far too early to assess the impact they could have. It remains to be hoped that they will provide effective solutions to these concerns, so that the decline of primary brokers affected by bankruptcy will not drag hedge fund clients down in the future. On the other hand, this should restore much-needed confidence in the UK premium brokerage model and encourage the flow of assets to UK premium brokers. But with the effectiveness of regulatory and structural changes, as with first-class brokerage contracts, the devil is always in the details. These proposed regulatory changes are an encouraging sign of regulators` ability to respond to perceived weaknesses in UK insolvency legislation, while the expected structural changes in the UK`s «premium brokerage» model are another example of innovation and responsiveness to the demands of clients taken for granted by investment banks. In 2009, the problems affecting the big banks also affected their first-class brokerage units and, as a result, the appetite for lending to hedge funds is less important. However, with the recovery of the banking sector, credit conditions are beginning to ease. As a result, we are starting to see the return of Margin Lock-up for the largest premium brokerage clients, who might actually be in a stronger trading position for such deals than a year ago. Some hedge fund lawyers argue that termination events are not entirely unilateral in a margin freeze, which means, for example, that the solvency of the first broker should be a termination event.
We see this as a secondary consideration and not as a point where we have to get bogged down in the negotiations. If a manager is concerned about the creditworthiness of the first broker, he can simply postpone his balances. You don`t need to stop the blocking — leave it there in case the fund restores balances with this first-class broker. In addition to their core credit business, premium brokers — often known in the trade as PBs — offer the following services: some hedge funds have already renegotiated the terms of their existing premium brokerage agreements after checking them with their new post-Lehman glasses. The conditions they are now working on include restrictions on mortgages, protection of client money, protection of client money, bilateral default rights event, control of the close-out mechanism and review of the treatment of separate assets (the use of third-party custodians being an obvious step) and mechanisms for the early release of separate assets in the event of premium insolvency or market risk management for separate assets that are taken to the trap of major bankruptcy. Prime BrokerageS` there is no usual agreement on the first brokerage. Premium brokers usually have their own version, which is traditionally designed to protect premium brokers from the bankruptcy of hedge funds, instead of protecting hedge funds from the bankruptcy of premium brokers. As many of those who have found their assets at Lehman have discovered, this can cause hedge funds to be painfully suspended if there is a first-rate brokerage bankruptcy. Whether perception is based on sound foundations is open to much longer debate; While it is interesting to note that some hedge funds seem to be as frustrated with the SIPC trustee who suffers the first US lehman broker as with the administrator of the UK Prime Broker lehman.