Give Up
A give-up is a securities or futures industry arrangement in which a broker executes a trade on behalf of a client but then transfers, or 'gives up,' the trade to a second broker — typically the client's prime broker or designated clearing firm — for booking, clearing, and settlement. The executing broker receives a commission, while the carrying broker holds the position and assumes clearing responsibility.
Key takeaways
- Give-up agreements allow hedge funds and institutional clients to route execution to any broker while centralizing clearing and prime brokerage services.
- The arrangement involves three parties: the executing broker, the carrying (give-up) broker, and the client.
- Commission-sharing agreements (CSAs) often govern how revenues are distributed among executing brokers in a give-up structure.
- Regulatory frameworks such as FINRA Rule 4311 require written authorization before a give-up can be effected.
- Give-ups are standard practice in prime brokerage relationships, enabling clients to access a wide range of execution venues without fragmenting their financing and margin arrangements.
Explanation
The give-up arrangement is a foundational feature of institutional trading infrastructure, particularly for hedge funds that maintain a prime brokerage relationship with one or two major dealers while simultaneously accessing execution capabilities from a broader universe of brokers. Without give-ups, a fund would need to maintain margin accounts and clearing relationships at every broker it trades with — a logistical and capital-intensive proposition. Give-ups solve this problem by allowing the fund to direct executions wherever it finds the best prices or liquidity while routing all post-trade activity through its prime broker.
In a typical give-up transaction, the workflow unfolds in three phases. First, the fund instructs an executing broker (Broker A) to buy or sell a specified instrument. Second, Broker A executes the trade in the market and notifies the prime broker (Broker B) that a trade has been done 'for give-up.' Third, Broker B accepts the give-up, books the position to the client's account, and assumes clearing and settlement obligations. The executing broker then effectively exits the transaction, retaining only its commission.
Give-up agreements must be formalized in writing. On the futures side, the National Futures Association requires give-up agreements to specify which executing brokers are authorized, the clearing fee structure, and dispute resolution procedures. On the equity side, prime brokerage give-up agreements enumerate the obligations of each party and often incorporate commission-sharing provisions that allow soft-dollar arrangements or research payments to be structured across multiple executing brokers.
From a risk management perspective, the give-up structure concentrates counterparty credit exposure at the prime broker level, which became a source of systemic concern during the 2008 financial crisis when prime broker failures threatened to strand client positions. As a result, many institutional investors diversified their prime brokerage relationships post-crisis, creating 'tri-party' and 'multi-prime' structures that spread clearing risk while preserving the operational efficiency of the give-up model.
Example
A long/short equity hedge fund instructs boutique broker XYZ to purchase 200,000 shares of a small-cap stock at the open. XYZ executes the purchase at an average price of $42.15. Pursuant to a standing give-up agreement, XYZ gives up the trade to Goldman Sachs, the fund's prime broker. Goldman books the 200,000-share long position to the fund's account, calculates the required margin, and handles settlement on T+2. XYZ receives its agreed-upon commission of $0.01 per share ($2,000 total), and the fund benefits from Goldman's leverage, securities lending, and consolidated reporting services without needing a separate margin account at XYZ.
Related terms
Cap Clearing Counter Trend Trading Crossing Network Day Trader Equity Financial Crisis Hedge Fund Implicit Transaction Costs Leverage Liquidity Margin