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Brijesh Malkan
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Solving the Last Mile Problem in Investment Research

One executive takes a forward look at how will the research value proposition change over the short to medium term, and what are the products and strategies managers will turn to?

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March 1, 2013

Here Comes Sticker Shock

By Editorial Staff

All the biggest clearing brokerages will be increasing what they charge clients this year as contracts come up for renewal, according to a clearing industry executive.

"It's unavoidable," said Craig Gordon, director of RBC Correspondent Clearing Services.

"Firms have been doing things for clients and not raising ticket charges. Now that has to change," Gordon said. "As contracts come up for renewal, clients are going to get sticker shock." Gordon said rate increases could vary between 5 percent and 20 percent, depending on the firm. However, expecting the client to pay more is "inevitable."

Gordon wouldn't name the firms, but said all the biggest ones as well as smaller firms are facing higher costs and pressure to be more finicky about taking on new correspondents who could cause problems.

Clearing brokerages generally have not raised prices over the past few years, Gordon added. But, faced with consistently low volumes and less revenue from interest-related business, the pressure to charge more will be felt throughout the industry.

He predicted both institutional and retail clearing brokerages would be increasing their charges.

Gordon also thinks that more firms that have become dependent on interest-related business will have a tough time surviving. An example of what has been happening to the industry? Gordon pointed to last year's bankruptcy of independent clearing brokerage Penson Financial.

 

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