Prime brokers move to SAS 70 audits
Learning from the default of Lehman Brothers, a growing number of prime brokers are adapting their business model to ensure margin is segregated and secure, with some looking to win third-party validation for the controls they have in place. Which firms are making the changes? By Christopher Whittall
Picture the scene: you’re a multi-billion-dollar long-short equity hedge fund that posts cash and securities to a major prime broker for financing and derivatives operations. One day, you wake up to discover the prime broker has defaulted, impounding millions of dollars of your assets and cash. Most participants would have found this scenario ludicrously implausible just two years ago. It no longer seems so far-fetched.
“The insolvency of Lehman Brothers International (Europe) (LBIE) was
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