Self-Clearing Tempts Brokers02.10.2012
Done correctly, self-clearing allows firms greater control over business.
For the sell side, the move toward self-clearing offers tangible benefits, but also entails risks, which to be handled effectively requires a deep bench of IT and domain experts.
“The challenge historically for firms to make this transition work effectively has been the upfront investments needed in both technology and experienced people, and achieving scale in this model more quickly,” Joseph Barra, president of International Securities Processing and Global Outsourcing Solutions, which is part of Broadridge Financial Solutions.
In a fully-disclosed relationship, the introducing broker must disclose the identity and other relevant information regarding its client to the clearing broker.
Self-clearing firms have full control over financing their business, optimizing revenue opportunities and determining service and product offerings.
“Firms typically want to have greater control over their business and accelerate growth,” said Barra. “Additionally, a self-clearing model enables a broker-dealer to maximize their revenue opportunities and often times reduce costs.”
Broadridge’s consolidated business process outsourcing (BPO) services support self-clearing through a combination of global asset servicing, client reporting, reconciliation and clearance and settlement for all product classes, said Barra.
“Broadridge brings deep domain experience and expertise in both technology and people along with its already robust client base which further provides the necessary level of scale on day one,” he said.
Broadridge’s solution can be deployed in its entirety or in key strategic parts on a turnkey basis.
“It’s important to note that this model is equally effective for firms who are already self-clearing if they’re interested in significantly reducing costs, increasing focus on their customer facing investments and activities, and yet not giving up on the benefits of controlling your own business,” he said.
Bloomberg Tradebook has selected Broadridge’s BPO solution to support its equity and option clearance and settlement business.
The agreement is designed to help Bloomberg Tradebook minimize its fixed-cost investment in technology and operational infrastructure, while also creating new revenue-generating opportunities as it transitions from its current fully-disclosed clearing model to self-clearing.
“This will enable Bloomberg to reduce their infrastructure investment, accelerate their growth, gain economies of scale and leverage our highly experienced staff and industry best practices,” Barra said.
The clearinghouses will be using a VaR methodology.
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