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October 14, 2008

Southwest Looks North

Dallas firm looks to grow its correspondent base

By Gregory Bresiger

Also in this article

Southwest Securities (SWS) is a midsize clearing firm with big plans. It recently added four new reps, expecting to attract bigger clients using a multi-pronged strategy. A big broker-dealer with some cachet in the Southwest, the Dallas-based company remains a relatively small clearing firm in much of the rest of the country.

But SWS officials say they're about to make a stronger push in the Northeast, the Midwest and Canada, where they'll certainly butt heads with Penson Financial Services. SWS also expects to go after potentially disaffected clients at clearing firms bigger than Penson.

"There are a lot of clients who will fall into the bottom quartile of my larger competitors. And they are not necessarily happy," says Timothy Hamick, executive vice president of SWS Group and head of its clearing services.

The Disaffected

These clients are often unhappy with the service and technology models of the big firms, he says, and disaffected because they don't receive personal service. So SWS officials say they will emphasize that they don't use interactive voice response, and market themselves as providing clients with "direct access to operational expertise." Hamick says clients "will be able to talk to a Mark or Mary every day, if that's what they want."

He praised his firm's operational efforts, but concedes that, as far as signing new business is concerned, SWS often has not been effective in the field making sales pitches.

"In the past, we hadn't been particularly good at that. But now we will be taking every opportunity to get out and tell people what we're doing," he says.

Who are his firm's prospective clients?

SWS is focusing on regional broker-dealers with 100 to 400 brokers, regardless of whether the brokers are independent contractors or firms with captive sales forces. Also, SWS is targeting active trading firms that are heavy users of algorithms.

Two of SWS's new hires, Dan Nordvedt and John Duffy, have worked for competitor Penson. A third, Michael Dunne, worked for Merrill Lynch's Broadcort, and the fourth, Charles Byron, comes from 1st Global, where he worked with CPAs.

Strategic Move

The additions give Southwest a total of three sales reps, responsible for finding new business, and three relationship managers, whose job it is to help clients expand their business, Hamick says.

Another piece of the SWS growth strategy is looking for acquisitions in a business that is trending toward far fewer firms. Noting the decline in fully disclosed clearing firms over the last decade, Hamick predicts the trend will continue. "We certainly would like to take advantage of it," he adds.

SWS, a subsidiary of the SWS Group registered in 33 states, has some 200 correspondents. That means it is today dwarfed by the heavyweights of the clearing business.

It provides clearing and execution services for other firms, including small broker-dealers and bank-affiliated brokerages. SWS provides products and inventory, as well as transacting orders and maintaining margin accounts for smaller firms. Its clients are often introducing broker-dealers. These are typically firms that are only sales organizations with no back-office capabilities.

An industry analyst says he's skeptical about SWS's move to become a bigger player in the clearing business. However, he agrees that surviving in clearing these days requires the ability to get lots of takeaway business from other firms.