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December 19, 2007

RBC Dain Rauscher Goes After Institutions

Clearing Quarterly & Directory

By Gregory Bresiger

RBC Dain Rauscher’s clearing division hasn’t been a strong player in the institutional market, but officials of

the Minneapolis based broker say that will change in 2008.


The firm expects to make a major push in the institutional space next  year. That’s because RBC Dain Rauscher will combine its retail broker with its parent firm’s New York-based institutional brokerage, RBC Capital Markets.


 “I expect that next year, our institutional clearing capabilities will be greatly enhanced and we will be worthy partners for the institutional broker looking for a new clearer,” Craig Gordon, president of RBC Dain Rauscher Correspondent Services, told CQ&D.


He adds that his firm will have increased institutional clearing capabilities when the retail brokerage and the parent firm’s high-net-worth brokerage unit meld.


“This will allow me to start leveraging some of the institutional trading systems to service the unique needs of the institutional correspondents,” Gordon says. That means adopting some of the direct-access systems the Capital Markets clients have been using. It will also result in a better order management system, he says.


Still, Gordon concedes that RBC Dain Rauscher is not now an institutional clearing powerhouse. He estimates that 85 percent of RBC Dain’s correspondents are retail clients. Presently, RBC Correspondent Services has some 170 broker-dealers and registered investment advisers as clients. But fewer than five of them are solely institutional clearing clients, Gordon says. Thus, the need for the retail and institutional units to unite, he explains. “We’re doing this not just to get more institutional clearing business. It will make us a more efficient firm overall,” he says. “But as a result, we will also be an institutional clearing firm with much greater capabilities.”


Gordon has been critical of some of the biggest clearers in the business. He contends that some big players can’t deliver what they promise. They lack an institutional trading system. That, he says, hobbles their efforts. “They often say they can do everything and that’s not the truth,” he says. (See feature page 22.) Still, a clearing industry observer is skeptical about the move. “RBC will have a very uphill battle,” warns David Easthope, a senior analyst with Celent. Even with the merger of the two units, Easthope says, RBC Dain will have difficulty competing with big clearing providers. Easthope adds that clients rarely leave those biggest clearing firms.


“It’s tough to get people to switch clearing firms, especially when they’re already getting research from a firm like Bear Stearns. RBC Dain will also have to spend tens of millions of dollars on technology just to compete,” Easthope says. He speculates that RBC Dain may be trying to compete in this  relatively new arena for the firm because its parent sees an opportunity. “Its parent, the Royal Bank of Canada, may be looking at the situation with the American dollar and seeing an opportunity, thanks to the sudden

strength of the Canadian dollar,” he says.