Executing Brokers and Give-Up Agreements

A trading fund often wants to execute orders through whichever broker offers the best price or access to a particular market at a given moment, but still wants all its trades to end up settled, financed, and reported through a single prime broker for simplicity. A give-up agreement makes this possible: the fund executes a trade with an "executing broker" (chosen for that specific trade), and then that executing broker "gives up" the trade to the fund's designated prime broker, who steps in to actually clear, settle, and hold the position.

The executing broker earns a small give-up fee for handling the trade and passing it along, while the prime broker takes on the ongoing custody, financing, and reporting relationship with the fund. This structure lets a fund spread its order flow across many executing brokers to shop for the best execution on each trade, without fragmenting its custody, margin, and reporting across all of them — everything still consolidates at the one prime broker.

A hedge fund might execute a large equity block through a specialist executing broker known for sourcing liquidity in that name, then have the trade given up to its prime broker, so the position shows up in the same consolidated portfolio and margin account as everything else the fund holds, rather than sitting separately at the executing broker.