Knight Elects to Go Self-Clearing

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

Knight, whose longtime clearing agent has been Merrill Lynch’s Broadcort, recently began self-clearing a small percentage of its trades. It currently self-clears about 60,000 of the roughly 4 million trades it executes each day.

Knight officials said the move is expected to be completed over the next year or so and should yield savings of about $20 million annually. More importantly, it will give Knight greater control over its trades, said Steven Sadoff, chief information officer for Knight Capital Group.

"This will mean our clients will have a one-stop way of finding out about their trades," added Chris Pento, a Knight managing director who is overseeing the project.

Industry observers say that self-clearing makes greater sense today, with memories fresh of the market meltdown and fears of counterparty risk. However, industry analysts said the move is not without its risks. That’s because Knight is going to keep all of the clearing functions in-house, which can be daunting, observers said. Others going the self-clearing route have outsourced technology to providers such as ADP or Thomson Financial, they said.

Or, noted Pento, some firms have tried and failed to make the transition to self-clearing internally. "No one, in the last three years, has done what we’re going to do and succeeded," Pento said. "But we are confident that we can do it."



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