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March 19, 2008

Pershing's Mexican Interdealer Coup

By John Hintze

Pershing recently won a mandate to clear for a Mexican interdealer broker after making efforts over the last few years to strengthen that niche clearing service-a win that provides the added benefit of displaying the clearer's cross-border expertise.

The clearer announced in December that Enlace Int. S.A., a Mexican interdealer broker specializing in Mexican government bonds, had appointed Pershing as its principal clearing agent. Pershing said the move establishes it as the first provider of clearing-and- settlement services to the Mexican interdealer brokerage market.

Pershing's "expertise in clearing our sovereign debt transactions will further enable us to continue to successfully grow our business," said Eduardo Riba, CEO of Enlace, in a statement.

The clearer began making a concerted effort to build out interdealer clearing following the autumn 2005 collapse of Refco Inc., a major player in the interdealer clearing arena. Pershing hired Tom Dillon and Robert Lino, who built up Refco's interdealer business and had worked in the interdealer clearing space at a string of firms since 1991. Dillon and Lino brought Refco clients along with them and, holding the titles of managing director and director at Pershing, respectively, have since focused on expanding the clearer's infrastructure to support growth in the niche business.

Enlace represents Pershing's first new interdealer clearing correspondent since Dillon and Lino arrived. Until now, the brokerage specialized in finding counterparties to large trades and then introducing those counterparties to finish the transactions. Using Pershing will enable the broker to use the clearer's capital and stand in between the counterparties-often very large brokerages and banks-so that they can execute the transaction without revealing their identities, a process known as "blank brokering."

"This gives full anonymity to the transaction, which large bulge bracket firms like, because it hides their trading strategies," Dillon said.

Pershing's new relationship with Enlace should also burnish its reputation as a clearer with expertise in cross-border transactions. Matt Bienfang, research director at Needham, Mass.-headquartered TowerGroup's brokerage and wealth management service, said there are far more clearing opportunities in the interdealer brokerage market in Europe and Asia. However, finding a new client in Mexico, where the market is relatively mature and in close proximity, presents a relatively painless way for Pershing to demonstrate its international expertise.

"It's demonstrating their cross-border expertise in clearance and settlement," Bienfang said. He added, "I see this as a validation exercise in their ability to service cross-border clients."

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