Self Clearing Firms

Originally posted by traderjimbo
I know some of the large prop firms out there are charging as low as .004 cents a share for high volume scalpers -- NYSE and Nasdaq ---- these firms self clear -- my questions is for the biggest firms out there that are able to charge .004 --- how much do you think their cost is ?
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I'd be interested in what you think about this: http://www.elitetrader.com/vb/showthread.php?s=&threadid=5942

I don't think clearing costs the provider anywhere near as much as we've been led to believe.

And I think the industry is in for a rude awakening, since, the way I hear it, a good many traders give up everything they make to costs. A guy won't do that forever. He'll either take on more risk, or he'll find something that lets him keep the fruit of his labor.

The industry needs to be reminded that it's the scalpers who drive the volume that makes the per share cost of providing clearing services negligible. Scalpers are dependable cash flow. Scalpers don't blow up.

I'll pay for my quotes and I'll pay 10 mils for clearing and execution (I mean, you don't even have a postage expense). Just let me keep 55% of what I take out of the market each day.
 
Originally posted by cgjung
I've worked and financed traders, and clearing cost including passthrough and sec fees can work out to 0.002 cents. The low cost is a function of what has been mentioned on this thread.


I know of a 10 man trading group that does about100million shares a month. When you break down the cost after all fees, they pay around 0.002.

You can have an arrangements with clearing firms on the type of securities you trade. If you trade a few stocks let's say CSCO and SUNW you would pay a $25 ticket for the day on any amount plus a 0.001 cents.

It doesn't matter whether you get the commission down to zero, the question is whether you can make money trading.
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the question is, will your clearing house let you keep what you make. At least, that is the question for me.
 
I have spoken about both the consolidation within the industry and of the benefits/perils of self clearing before. Just for the record, the reduction in the number of firms (about 60% in 2 years) has left a number of traders in a bit of a lurch, but at the same time has helped some firms grow stronger. The "fixed" costs of self clearing can cause for some (extremely) short term pricing wars ....offers made in desperation just to keep the doors open...and for the buyer to beware of.

As Gene W. has posted in the past, there is more than just costs, but we at BT have always had the focus on trader retention (via lower costs, firm viability, and trader profits)...which allows us to maintain a slightly higher than "bare bones" price for a few traders, and a great price for the majority, all while maintaining our continuing in the business. We do this by not "bending over" to every 1 or 2 percent difference in costs, but having the margin to adjust to the marketplace....and we don't spend wildly on new 'toys" and "big parties" (which I have actually seen posted as a "positive" when picking a firm...how silly).

Stay tuned as our structure continues to mature and grow, all with the traders well being in mind. As for the handful of competitors who will stay in the game with us....I say "bravo" ...let's keep a fair playing field....and grow the industry.

As I have said to the heads of other firms, some nasty ...some nice....."we are all teams in a "league of our own" and we must not "self destruct"...and I hope that those that are causing the problems will try to see the bigger picture, so we can can all thrive in the is business we all love....


(Sorry if I got a bit too deep here, we are just hitting our stride in another big growth spurt, and I want to everyone to do well).

Don
 
it's time for clearing rates to reflect the real costs of the service provided plus a reasonable profit and a reasonable risk premium.

i have a hunch that the clearing infrastructure was paid for a long, long time ago, especially for NYSE business.
 
"As I have said to the heads of other firms, some nasty ...some nice....."we are all teams in a "league of our own" and we must not "self destruct"...and I hope that those that are causing the problems will try to see the bigger picture, so we can can all thrive in the is business we all love.... " ----Don Bright


"We must not self destruct"--really means, DON'T RUIN THIS RACKET
"See the bigger picture"--PEOPLE HAVE TO TRADE SOMEWHERE, SO DON'T KILL OUR RIDICULOUS COMMISSION MARKUPS
"We can all thrive in this business we all love"---WHERE ELSE CAN WE GET SHEEP TO CHURN AWAY ALL THEIR PROFITS INTO OUR POCKETS...
I'm sure this post won't be up for long (censorship). I just think this is an absolutely moronic statement from the head of a trading firm.
Lower costs for firms mean lower commissions for traders (if they're smart enough to negotiate a proper deal).
The self clearing firms can give better rates which undercuts places like Bright, so of course Don's not happy with that.
 
Let's assume the fees mentioned above are correct you need to add on some pretty hefty fixed costs:
- annual audit/accounting
- infrastructure (phone lines, hardware, software)
- legal fees
- employees salaries (programmers, clearing staff, systems folks, accounting, legal & compliance)
- employees benefits
- support
- banking
- sales/marketing

You also should add on the potential cost for out trades and a reasonable risk/return for the leverage given to the clients.

You guys sound as if the clearing firms are making killings and raping their clients? If they were, there would be many more firms wanting to enter the business (pure economics) or other firms slashing prices to steal the biz to gain market share and further economies of scale.

I don't think it is as cut and dry as many of you think. I'm sure I'm leaving out some costs above but I'm sure the prior posts are underestimating the costs. In any event, what do you think is a fair return?
 
Originally posted by VOLUME
"As I have said to the heads of other firms, some nasty ...some nice....."we are all teams in a "league of our own" and we must not "self destruct"...and I hope that those that are causing the problems will try to see the bigger picture, so we can can all thrive in the is business we all love.... " ----Don Bright


"We must not self destruct"--really means, DON'T RUIN THIS RACKET
"See the bigger picture"--PEOPLE HAVE TO TRADE SOMEWHERE, SO DON'T KILL OUR RIDICULOUS COMMISSION MARKUPS
"We can all thrive in this business we all love"---WHERE ELSE CAN WE GET SHEEP TO CHURN AWAY ALL THEIR PROFITS INTO OUR POCKETS...
I'm sure this post won't be up for long (censorship). I just think this is an absolutely moronic statement from the head of a trading firm.
Lower costs for firms mean lower commissions for traders (if they're smart enough to negotiate a proper deal).
The self clearing firms can give better rates which undercuts places like Bright, so of course Don's not happy with that.
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"Just when I think I have seen the stupidest comments ever...this guy emerges from some cave and starts posting"...and is having hallucinations about reading between the lines of my post, kinda sad really......(sorry all, but I just couldn't resist....it is so amusing to see this type of mindless retort). Now for a "normal" response:

There have been many self-clearing firms come and go, and we have explored self clearing...but with the tremendous economies of scale that come from being part of a bigger team, who isn't worried about paying salaries and covering basic costs, we can be a lot more versatile in our apporoach to the business. Self Clearing is fine for some, but has proven to be a nightmare for many....When the day comes that it makes sense to self clear, we will do it...but for now we don't want to be locked in to a high fixed cost....just good business...no big deal.

Have a good day..

Don
 
Originally posted by def

You guys sound as if the clearing firms are making killings and raping their clients? If they were, there would be many more firms wanting to enter the business (pure economics)
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You hit the nail on the head there, def. ANY business where obscene profits are being made will always draw in more firms until economies of scale and consolidation bring about a more efficient market. That's exactly what has happened here. There used to be tons of daytrading firms out there in 1999-2000 time frame and then the consolidation came... rates cut, firms buying each other, firms shutting down.

If those huge profit opportunities for firms were still out there, you'd see the big players getting into the business... the clearing firms setting up their own divisions, other financial institutions that already have the infrastructure and would just need to apply the model to a section of it. That hasn't happened and I haven't seen any sign of it happening.
 
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