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January 1, 2004

Fidelity Eyes Growth In Self-Clearing Biz

By John A. Byrne

National Financial, the clearing unit of Fidelity Investments, has embarked on a major drive to sign up dozens of self-clearing firms.

Fidelity's clearing arm would also acquire industry rivals under the right terms, Norm Malo, president of National Financial, told Traders Magazine. But for now the firm is carefully weighing its next move, following its acquisition last year of Correspondent Services Corp. (CSC).

"Our strategy is to grow market share," Malo said. "We're not looking at any acquisitions right now but if it makes sense we'll look at them."

The deal with CSC, which was acquired from UBS PaineWebber, fulfilled Fidelity's short-term objectives, Malo noted. It immediately doubled National's correspondent list, from 150 to 300 customers. It melded National's focus on the bank and insurance market with CSC's mostly full-service brokerage, institutional-size business.

National Financial's correspondents have some six million account holders, generating 140,000 trades daily. About half of the business is equities.

Malo sees additional opportunities among the ranks of self-clearers. He said his office had a record volume of inquiries in 2003 from self-clearing firms eager to reduce costs. These costs included new reporting regulations such as the Patriot Act and Sarbanes-Oxley, as well as costly disaster recovery expenses.

Self-clearing firms could reduce their backoffice expenses by as much as 20 percent, Malo estimated, by outsourcing to National Financial, functions such as dividend and margin services.

Still, it has stiff competition from giants such as Pershing and Bear Stearns and a raft of other, such as Spear, Leeds & Kellogg, which are all combing the landscape for more business.