Clearing

Knight Elects to Go Self-Clearing

After nearly a decade of internal debate, Knight Capital Group has taken the plunge and begun self-clearing.

Cover Sidebar: Betting on Swaps

Much of Nasdaq's head of transaction services Eric Noll's time will be spent steering the ship into new waters: development of Nasdaq's interest rate swap clearing business.

New Kid on Clearing Block

Brokerages are paying too much to the industry utility to clear cash equity trades. That will be Nasdaq's argument to shareholders and clients as it gears up in the domestic market to become a major player in the clearing business. That means it will bump heads with the Depository Trust and Clearing Corp. (DTCC) and its subsidiaries.

Europe Awaits Competition

U.S.-based companies are readying a full-frontal assault on the European clearing business. They believe that Europe is not only ripe for competition, but that overseas providers are inefficient and too expensive.

Watch that Keystroke!

For want of a nail, the battle was lost-and often, the simplest thing is why a settlement is botched. That's the philosophy of Omgeo officials, who have just released a new version of their Omgeo Alert product, a database for the communication of global settlement and account instructions. Omgeo Alert SSI Lift Out is designed to ensure that settlement instructions and account data are correctly entered. The product update is designed to establish multiple levels of authorization for the creation and deletion of all (FX) foreign-exchange and cash settlement instructions.

Southwest Looks North

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.

Shoreline Goes Abroad

Small and midsize hedge funds increasingly want help in executing and clearing trades abroad, say officials of Shoreline Trading, which recently announced new overseas alliances. Shoreline, offering mini-prime brokerage and agency execution services, will now have new connections in Asian, African, European and Australian markets through its Global Prime Services operation. The alliances, or connections, will be through Goldman Sachs Execution & Clearing, JPMorgan and Credit Suisse Securities.

Forget the Paper, the Paper

Providing access to a URL on the Internet can now be as good as providing a paper confirmation for an institutional trade. That's the principle of a no-action letter recently granted by the Securities and Exchange Commission to vendor Omgeo, which sells the TradeSuite trade processing service to brokers and investment managers. "This is a sign of the times in the trading industry," says John Panchery, managing director for operations, technology and business continuity for the Securities Industry and Financial Markets Association. "Access now equals delivery."

Small is Beautiful

Hedge funds managers using structured products and other exotic strategies have become toxic for small prime brokers. Small primes, sometimes referred to as "mini-primes," might have tallied some business with big hedge funds that had exotic strategies. But these days, that is no longer the case, after the credit crunch and the fall of Bear Stearns. This change in strategy speaks to the severity of the impact that illiquid securities can have on markets.

The Young Guns of Prime

Pershing and Fidelity, two recent prime brokerage entrants backed by deep-pocketed parent companies, hope securities lending will propel them among the elite primes. Still, these prime brokerage units-launched by financial services giants Fidelity Capital Services and BNY Mellon's Pershing-are competing with long-established, bigger firms like Bear Stearns and Goldman Sachs. "Fidelity, as an agency-only broker, could be an effective prime broker player," says Josh Galper, managing principal with the consultant Vodia Group.

Quadriserv's New Securities Lending Portal

Finding the best rates for longs and shorts will be easier with a new securities lending price-discovery service.

NSCC Awaits SEC Ruling

The cost-cutting needs of brokers are clashing with the continuity demands of a utility. That is how the debate is shaping up over a National Securities Clearing Corp. trade-compression plan pending before the Securities and Exchange Commission. Brokerage officials charge the plan is arcane and would hurt them. "This would be a substantial cost for everybody," says Neil Fitzpatrick, head of retail executions at Chicago's Citadel Investment Group, which aggregates high volumes of orders to execute for brokerage customers.

FTEN Monitors Bad Behavior

As trading gets ever faster, compliance with new regulations can get tougher for prime brokerage and clearing firms. But application service provider and technology firm FTEN designed a new compliance surveillance system, named TradeXaminer, to help.

Boosting Securities Lending at Quadriserv

Former Nasdaq and CIBC World Markets trading executive Bruce Turner was once part of the solution that helped over-the-counter equities become more efficient. Now he hopes to do the same for securities lending. Turner, a rabid Boston Red Sox rooter, likes underdogs who overachieve. His journey has taken him from one of the biggest trading houses, CIBC, to a relatively small securities lender, Quadriserv. He says he likes the challenge of serving a niche business at a small firm.

Making Alliances Work

Among other things, clearing firms must be good intermediaries in arranging outside services for clients. Although ticket charges and services are still very important when deciding on a clearer today, there's an increasingly critical factor in the specialized clearing business: Even some of the 800-pound gorillas of clearing don't do it all, so they must farm out some services to vendors and third parties.