Some Clearing Firms Found New Business Last Year
Traders Magazine Online News, August 29, 2011
Numerous clearing brokerages have been dying over the past few years, but for some, 2010 was a good year.
Indeed, Goldman Sachs and Merrill Lynch Broadcort were among the big winners in adding new clearing relationships last year. BNY ConvergEx also did well.
Those are some of the findings of a new study by LaRoche Research Partners, titled "U.S. Broker-Dealer Clearing Relationship Changes."
"Two firms, Goldman Sachs and Merrill Lynch (in two clearing subsidiaries), led the signing of new institutional customers in 2010," said Doug Dannemiller, a principal of LaRoche Research. "This is indicative of a market where the reputation of the leaders carries over to business results. It also indicates that other firms will have to focus sales efforts on this market to overcome the automatic selection of the market leaders."
So how do clearing firms persuade brokerages both new and old to give them their business?
To win new customers, firms compete on "platform efficiency, trade processing charges, margin rates, cash management services, and packaged investment product processing and availability," the report said. Other factors, especially for institutional clients, are "price per trade, credit, market access and speed."
LaRoche's research shows that 70 new retail and 46 new institutional firms selected a clearing provider for the first time in 2010.
"This fact indicates that having a systematic approach to finding a start-up brokerage firm is as important as having a traditional sales approach for existing brokerage firms," Dannemiller said.
Another factor in obtaining new business, the report said, is discounts or payments for signing long-term contracts. Financial advisers, according to the report, do take note of the clearing platform in choosing a broker-dealer. And they "heavily favor" a clearing platform with which they are familiar.
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