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March 19, 2008

Broadridge Brings on New Outsourcing Customers

By John Hintze

Broadridge Financial Solutions is gaining traction with its outsourcing solution, signing two new clients over the last several months, including a startup focusing on institutional business.

The offering allows clients to continue self-clearing but outsource most back-office tasks.

LBBW Securities LLC, a wholly-owned subsidiary of Germany's Landesbank Baden-Wurttemberg, is one of the new Broadridge clients. LBBW began a self-clearing repurchase agreement and proprietary fixed-income trading last July while outsourcing most of those activities' back-office operations to Broadridge. The broker-dealer, which services German institutional clients looking for financial services in the U.S., first applied for its self-clearing broker-dealer license in summer 2006 and received approval the next March-a relatively short approval period.

Markus Schmalhofer, CFO of LBBW, said that starting up a new business while dealing with the operational processes behind it can be daunting. He said LBBW noted clearly in its application that the firm planned to outsource much of the back office to an established firm that specialized in outsourcing. That may have worked in its favor from a regulatory-approval standpoint, and it facilitated launching the startup.

"It's very comforting to know you have partner that's already established and has gone through build-up side," Schmalhofer said.

LBBW is also introducing U.S. investors to European and mostly German equity investment opportunities, as well as helping place German private placement debt in the U.S., two services that do not require clearing. In terms of the repo and fixed-income businesses, Broadridge will perform all the settlement and clearing operations, such as settlement at the Depository Trust & Clearing Corp., handling the clearing account and moving securities.

"We'll keep an eye on Broadridge to make sure those tasks are performed properly," Schmalhofer said.

Schmalhofer noted that beyond minimizing operational uncertainties at LBBW, Broadridge at least initially substitutes for the new broker-dealer's lack of reputation in the market, ensuring other participants that best practices will be followed. LBBW will also be using Broadridge as its trade processor.

Joseph Barra, a vice president of securities clearing and operations outsourcing solutions at Broadridge, noted that his firm will be performing LBBW's Street-side clearance and settlement functions, such as purchase and sales and settlements-"things we like to refer to as mission critical, but not differentiating functions," Barra said.

Broadridge, a part of Roseland, N.J.-based Automatic Data Processing until its spin-off last March, brought on its first outsourcing customer, then-TD Waterhouse, in spring 2005. Later that year, E*Trade Financial signed up. Those firms, however, cater to retail investors. WestLB, also a German brokerage, became Broadridge's first institution-oriented broker-dealer client in early 2007; LBBW is the second.

So far, Broadridge is the only firm to offer such an outsourcing solution to self-clearing securities brokerage firms, although other, larger correspondent clearers are also seeking to broaden their outsourcing services. Broadridge recently expanded its outsourcing footprint into Canada, where, Barra said, the firm's Brokerage Processing Services is now the largest trade processing service.

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