Who typically provides custody services in a prime brokerage arrangement?

In a prime brokerage arrangement, the prime broker is the main entity that provides custody services. This includes holding and safeguarding the assets of hedge funds, institutional investors, and other clients. The prime broker not only executes trades on behalf of the client but also offers various services such as financing, clearance, and reporting, along with custodial services to ensure that the assets are securely managed.

The role of the prime broker is crucial as it provides clients with a comprehensive suite of services that facilitate their trading and investment strategies. By centralizing the custody of assets, the prime broker streamlines the process for the client, thereby enhancing operational efficiency and minimizing settlement risks.

Other entities, such as execution brokers or introducing brokers, may be involved in the trading process, but they do not typically offer custody services. The execution broker focuses on executing trades on behalf of clients, while the introducing broker acts as an intermediary that connects clients with the prime broker. The customer, in this context, is the investor or entity that is utilizing the services of the prime broker, but they do not provide custody services themselves. Therefore, the correct answer highlights the prime broker's key role in providing custody and related services within a prime brokerage framework.