How to self clear

Discussion in 'Order Execution' started by nitro, Jan 17, 2008.

  1. nitro

    nitro

    WallstYouth,

    Thanks for the detailed response. That really gets me going in the right direction.

    nitro
     
    #11     Jan 23, 2008
  2. nitro

    nitro

    Thaks for the detailed response.

    Yes on BD, no on NASD.

    yes

    Not several

    Yes

    yes

    Not initially, but easily within 2 months of initial ramp up.

    Yes, as the savings are substantial if you are doing 5 to 10% of the volume on an exchange.

    nitro
     
    #12     Jan 23, 2008
  3. We've explored all this over the last 20 years or so. My first question is who are you clearing with now?

    In our opinion, it makes sense that Goldman Sachs should be able to do the execution and clearing (thus GSEC) much more efficiently that we could ourselves. There are other reasons to be aligned with "many" clearing firms, but not all are of much value other than clearing. Short stock availability, interest rates on SS sales, interest rates period, etc. We've been with the same Clearing Firm since the 70's, and won't likely change...unless something better comes along, and many have tried to date.

    I might suggest that you ask your Compliance Officer about this, if you have an experienced person in that department, they should be able help.

    Don
     
    #13     Jan 24, 2008
  4. Unless you clear minimum 100mm shares a month and generating customer revenue, the capital costs will outstrip the beneifts of self clearing. Trust me, I've looked into this.

     
    #14     Jan 24, 2008
  5. More like 8 figures.

     
    #15     Jan 24, 2008
  6. nitro

    nitro

    Thanks for the response. I am not sure about it and I need to know with my own two hands. I was hoping for an operational description and the different parts of clearing that are possible to do for oneself, and approximately what the savings would be.

    Really, this is not in theory anyway a difficuly question. Here is what I would expect from an expert:

    1) Clearing consists of x, y, z.
    2) Most clearing firms charge, a for x, b for y and c for z.
    3) The only part that you can delegate to yourself is z.
    4) Therefore you can save yourself c if you do z yourself. However, you need software Q and hire a person that does this.

    So say you can hire an operations person for $60,000 a year. Say you have to lease software that costs $5000/M to clear the trades. That is a total cost of $120,000. That is the number that you need to get to just to break even.

    You get this ghist...

    nitro
     
    #16     Jan 27, 2008
  7. nitro

    nitro

    Thanks for the response.

    Your idea of asking the Compliance officer is a good one. Thing is, in my experience very few people understand any of this business on a deep level to know what is or isn't possible. I know for a fact that there is a business case for doing some parts of the clearing operation if you do enough volume.

    Goldman Sachs is in business to profit from clearing amongst other things. The very fact that they are in the business means it is profitable. If it is profitable for them to do it, it may be profitable for you to do it as well. Outsourcing is a double edged sword. I just don't know what the break even points are, or the headaches involved, hence this thread.

    nitro
     
    #17     Jan 27, 2008
  8. The biggest expense is in the overhead with employees, software, order checking, etc. And since we have no need for additional employees to do such things, and since we have been with the same clearing firm since 1978, we feel real comfortable with our "deal." It also adds to the security of the Firm, IMO, since traders feel real comfortable with Goldman Sachs. All the trading sheets, and record keeping is a real hassle.

    And, yes, we've run the numbers, and we trade billions of shares each year, and the numbers just don't make sense at this point in time.

    But, it may make sense to some.

    All the best,

    Don
     
    #18     Jan 28, 2008
  9. i bet if you keep negotiating and looking around, you can get clearing rates so low, you wouldn't even think about the hassle..
     
    #19     Jan 28, 2008
  10. nitro

    nitro

    Thanks for the response.

    nitro
     
    #20     Jan 31, 2008