How to self clear

[nitro]

Quote from trade4succes:

i bet if you keep negotiating and looking around, you can get clearing rates so low, you wouldn't even think about the hassle..

Thanks for the response.

That would be innacurate. Doing both is potentially worth hundreds of thousands of dollars or millions a year in savings on comission when you are doing 15% of the volume a day of an ECN. Looking to reduce your clearing rate doesn't handcuff you from also looking to reduce any other fee.

Thing is, few people understand the components of clearing, so they don't know what to shop for. I am now beginning to understand it better.

nitro

 

[rcanfiel]

Quote from nitro:

Has someone gone the route of self clearing? What does it take in terms of money, regulation, software, etc? Have you written your own back office software, and is it mostly an accouting system specialized for securities transactions? Can you lease a sofware that would allow you to do some of the clearing functions, and when does it make sense (breakeven analysis, etc)? How does straight through processing allow you to do some clearing functions but not all, and save money? A large part of your comission bill is clearing.

Here is a program that I believe can do the entire gammut of clearing:

http://www.sungard.com/Phase3/

I have a million questions. I realize there is probably five people on ET that can answer these questions, but I thought it would give it a try.

nitro

Ask Tom Cruise - the Scientologists take care of self clearing. For a price

 

[LOL LOL LOL]

Hi,

For what it's worth, I remember back about a 2 years ago, me and the guys I traded with with sat down and laid everything on the table finding the breakeven point and exactly how much you'd need to do in volume in order to make it worth your while and I can't remember exactly what the break even number was, but I remember it being a lot less than you'd think... no where near what was previously said.

At the time, I wasn't all into exploring the idea, because as NYSE tape readers, I felt that our edge was going to be non existant once the marketplace became fragmented, however the one guy who kept one insisting that we truely consider self clearing actually ended up moving to chicago with some Russian's who set up the whole process. I think they did it for ~ 6 months and shut down the opperation. I asked him, had he estimated the breakeven wrong and he said not really, but just that once you delve into it, you find more and more hurtles that just ain't worth the effort

 

[chanster]

does anyone know what the big broker dealers who clear directly with the pensons of the world pay per share? we know some guys on this board pay big sub .001 per share rates. i've heard penson does something called batch clearing which means that the b/d's pay 1 clearing charge per stock. many times on your monthly clearing statment you'll see all your trades in 1 stock totaled for the day. so if you trade 100k shares of 2 stocks i think the b/d only pays 2 fees for about $5 total. so charging even .001 per share he's making nice money.

 

[WallstYouth]

Quote from chanster:

does anyone know what the big broker dealers who clear directly with the pensons of the world pay per share? we know some guys on this board pay big sub .001 per share rates. i've heard penson does something called batch clearing which means that the b/d's pay 1 clearing charge per stock. many times on your monthly clearing statment you'll see all your trades in 1 stock totaled for the day. so if you trade 100k shares of 2 stocks i think the b/d only pays 2 fees for about $5 total. so charging even .001 per share he's making nice money.

I work for a large bank and the bulk of our profits believe it or not isnt what we charge clients who trade through us but its the end of day booking/settlement and processing.

 

[Sky123987]

Quote from LOL LOL LOL:

Hi,

For what it's worth, I remember back about a 2 years ago, me and the guys I traded with with sat down and laid everything on the table finding the breakeven point and exactly how much you'd need to do in volume in order to make it worth your while and I can't remember exactly what the break even number was, but I remember it being a lot less than you'd think... no where near what was previously said.

At the time, I wasn't all into exploring the idea, because as NYSE tape readers, I felt that our edge was going to be non existant once the marketplace became fragmented, however the one guy who kept one insisting that we truely consider self clearing actually ended up moving to chicago with some Russian's who set up the whole process. I think they did it for ~ 6 months and shut down the opperation. I asked him, had he estimated the breakeven wrong and he said not really, but just that once you delve into it, you find more and more hurtles that just ain't worth the effort

I could be wrong about this, but IB's clearing fee is .0002 / share. I'm guessing that, that's a somewhat near the norm rate. So for every million shares you clear that's 200 bucks. If it costs 100,000 like nitro said per year or 8,000 / month, you'd have to do 40,000,000 / month JUST to break even

 

[AutoMate]

Quote from nitro:

Thanks for the response.

That would be innacurate. Doing both is potentially worth hundreds of thousands of dollars or millions a year in savings on comission when you are doing 15% of the volume a day of an ECN. Looking to reduce your clearing rate doesn't handcuff you from also looking to reduce any other fee.

Thing is, few people understand the components of clearing, so they don't know what to shop for. I am now beginning to understand it better.

nitro

Nitro,
From my experience in this area I tend to agree with Trade4success in that clearing is just one of those things that, except in the most extreme cases, its just better outsourced. If you have volume to justify considering self clearing then you probably have the clout to really negotiate hard with the clearing options out there. They want volume so if you have it you are in the driver's seat. From everything I have learned about clearing (admittedly I am no expert), it is a huge volume driven business. The infrastructure , from both a technical and personel prospective means big volume creates substantial economies of scale. I also think that if you try to take the route of breaking down the process and doing some aspects of the clearing 'in-house', clearing firms maybe less inclined to take on your business. Clearly they need to make something for their services, and the closer to the bone you try to cut them, the less they want to deal with you.
Something that caught my attention in your post was "when you are doing 15% of the volume a day of an ECN", if you are saying you are doing 15 % of an ECN's daily volume then that is definitely a spot I would look to squeeze costs out of. Those guys really need your business and they are pretty much all over priced with big margins. I am certain you could realize some good bottom line appreciation by trying to squeeze these guys.

Good luck in you quest anyways!

Auto

 

[man]

just hindsight. i can hardly believe that for a 2men shop
it makes sense to get clearing in-house. my point is that
even highfrequency clearing is already a competitive
business, thus prices will most likely already reflect cost
plus small margin.

IMHO a developmentshop should specialise in development
and outsource all of admin. besides i believe the saving
does not payoff all in all, the shop is endangered to shift
from a developer to an administrator. have seen that.
spells: slow bleeding to death. working all day on the
wrong businessmodel, developing a little tool here and
there and losing edge on the true thing ...

 

[nitro]

Quote from Sky123987:

I could be wrong about this, but IB's clearing fee is .0002 / share. I'm guessing that, that's a somewhat near the norm rate. So for every million shares you clear that's 200 bucks. If it costs 100,000 like nitro said per year or 8,000 / month, you'd have to do 40,000,000 / month JUST to break even

Can you provide a link that shows that IB charges .0002 to clear a trade?

nitro

 

[nitro]

AutoMate,

Quote from AutoMate:

Nitro,
From my experience in this area I tend to agree with Trade4success in that clearing is just one of those things that, except in the most extreme cases, its just better outsourced.

I agree. But if you read this thread carefully, you will see that I may be in one of those extreme cases soon.

If you have volume to justify considering self clearing then you probably have the clout to really negotiate hard with the clearing options out there.

There are three parts to your comission bill; clearing, execution and ECN passthroughs. Execution is by far the easiest to resolve, and we are on our way to removing the execution fee from our comission. My next task is to get the clearing as low as possible. We would outsource that which would be too cumbersome. But as I have stated in this thread, there are parts of the clearing that you can do that will reduce your clearing fee.

It is all negotiable. It depends on volume and what work you are willing to bring in house.

They want volume so if you have it you are in the driver's seat. From everything I have learned about clearing (admittedly I am no expert), it is a huge volume driven business. The infrastructure , from both a technical and personel prospective means big volume creates substantial economies of scale. I also think that if you try to take the route of breaking down the process and doing some aspects of the clearing 'in-house', clearing firms maybe less inclined to take on your business.

That is in my experience false, exactly for the reasons you state. You are telling me that if I am trading 140,000,000 shares a day, and I come to you as my clearing firm and tell you that either you allow me to take on the resposibility of some of my clearing work and to lower my clearing fee accordingly, or I take my business to the clearing firm accross the street, that you would turn me down? Your manager would be asking you what happened to me at your next meeting. Not only that, I know for a fact that it can be done and is done.

Clearly they need to make something for their services, and the closer to the bone you try to cut them, the less they want to deal with you.

Again, it depends on your volume.

Something that caught my attention in your post was "when you are doing 15% of the volume a day of an ECN", if you are saying you are doing 15 % of an ECN's daily volume then that is definitely a spot I would look to squeeze costs out of. Those guys really need your business and they are pretty much all over priced with big margins. I am certain you could realize some good bottom line appreciation by trying to squeeze these guys.

That __is__ what I have been saying all along!!!

Good luck in you quest anyways!

Auto

Thanks.

nitro