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Has Self Clearing Become A Profit Margin Headache?

Traders Magazine, July 2004

John Hintz

Brokerage firms that choose to clear their own trades have long viewed themselves as the industry's mavericks, taking on the often cumbersome back-office responsibilities of collecting and maintaining transaction-related data in order to provide their customers with quick, hands on service. That independent streak, however, has eaten deeply into their pockets in recent years, making the back-office more of a profit margin headache than benefit. The back-office dilemma is making fully disclosed relationships with a clearing firm more attractive, a prospect that has been further sweetened by clearers' efforts to make their correspondents feel more like they're still self-clearing. The last four years have been painful for the brokerage industry as whole. Beyond the seemingly never-ending goal to achieve straight through processing by automating their business systems, brokerage firms have had to bolster their business continuity plans following the Sept. 11 attack, and they've faced a slew of new regulations. Many of the new regulations followed the collapse of Enron and other corporate scandals, but new regs, such as proposals for new mutual fund point-of-sale disclosures and short sale rules keep coming down the pike.

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