A Prime-of-Prime (PoP) is a firm which serves as an intermediary between retail brokers and prime brokers.
Since prime brokerages have generally set a high barrier of entry for opening an account with them, not every retail broker can afford to have a direct line of credit.
Meet the intermediary which is either connected to one, or sometimes even aggregating flow from multiple liquidity providers to deliver to retail brokers a price stream with competitive prices where they can offload their flow.
Tier one liquidity providers are only dealing with more significant clip sizes and do require sufficient volume in order to make money on the flow.
They also tend to particularly risk-averse, especially in the aftermath of the Swiss National Bank (SNB) crisis, when several retail brokers ended up unable to pay to their liquidity providers (LPs).
Unique Role of Prime of Prime
PoPs help meet several standards imposed by tier one banks.
In this sense, PoPs provide a unique set of services that ordinary retail brokers are not equipped to handle.
This includes strengthened risk management practices and more rigid financial protocols.
PoPs act as a natural bridge in this relationship, as it is able to effectively meet these standards and operate as a client or partner with the tier one banks.
In doing so, this relationship enables the retail broker to trade through them with the tier one bank.
Generally prime of primes are bridging the gap between less sizeable retail brokers and the traditional prime broking industry with big banks and select non-bank LPs.