SIE (Securities Industry Essentials) Practice Exam

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In SEC and FINRA regulations, what is the term for a firm that processes transactions and has back-office clearing for institutional investment managers' multiple brokerage accounts?

Settlement broker
Clearinghouse
Prime broker
Custodian

The correct answer is: Prime broker

A prime broker is responsible for back-office clearing and processing transactions for institutional investment managers. A settlement broker typically handles transactions between the buyer and seller, but does not have the back-office clearing responsibilities that a prime broker has. A clearinghouse is a financial intermediary that helps facilitate the clearing and settlement of trades, but does not directly work with investment managers and their multiple brokerage accounts. A custodian is a financial institution that holds and safeguards assets on behalf of clients, but does not have the responsibility of processing transactions and providing back-office clearing services. Therefore, the term for a firm that processes transactions and has back-office clearing for institutional investment managers' multiple brokerage accounts is a prime broker.