I am sorry, I missed this detailed response. Thanks. We are looking into ETP now. We are not retail, in fact we have a BD and are MMs at the CBOE and soon will be members of NASD. The rest of your post is also very informative. You might be right that we may have to aggregrate some traders into a JBO or something like that to get the scale of efficiency. What is DC&TT? nitro
Im an expert in clearing.....the number one cost in clearing is the back ofice software,,,,SIS, BETA, SunGuard....they aint cheap....and they all have a min. monthly fee of 50K or more...do the math..if you do a 100k trades per month (most of these systems do not batch)..your looking at a cost of 2 cents a trade just to cover your software MIN...but most of these firms will charge even at that level about 7-12 cents per trade.... the above does not take into account 1) DTC/NSCC fees 2) DTC/NSCC flipping fees 3) DTC/NSCC connectivity fees 4) NASDAQ FEES 5) SEC fees 6) Sis/beta/Sung connectivity fees Now you will also need a cool 1 million plus in capital...this is to meet DTC/NSCC Reserve requirements...Usually, they require On million above your net cap requirement...so if your trading and debits and credits require say a net cap requirement of 1.25 million...you wll then need to have in reserve with DTC 2.2 Million....but thats not all...In addition, suppose one of you trades trades...Oh...1 million shares of a low priced stock? Due to risk they can do a house call for additional deposits....and they can also restrict the total aggregate amount of trades and or market value you can do in a day...btw...guess who regualtes DTC??? NOBDODY for all intents and purposes... lastly, you need a CFO who can handle reserve and net cap computations on a Daily basis (100k + per) a Compliance officer, a back office team that will check for trade breaks. AML audits, Annual audits and reporting of your financials twice a year to all customers...the list goes on and on.....BANK fees are aos Killer especially if you need lines of credit want to know where all the money is made in clearing? charging clients 10% on margin debits and paying 2BPS ob credit balances below your cost....also, clearing firms can use one clients credit balance ( at say 2.5%) to loan out on margin at 10%...now imagine this built in profit if you have 100, 200 or 500 Million in Margind debits??? anyway, pm me if you'd like to know more
Clearing is going to be a new terrain of competition: http://us.ft.com/ftgateway/superpage.ft?news_id=fto020520081847316846&page=2 CME stock is getting crushed today on possibly being forced to open it's operations to competition. I expect that Goldman Sachs, Merrill Lynch, Fortis, etc, will soon either be a big loser on this, or a big winner (I am guessing GS is going to lose big). I don't know enough about it to make a sound judgment. nitro
Interesting post. What do you exactly mean with 'Nasdaq fees' ? Trading activity fee ? Could you give some info about how much the first 3 fees are ? Thanks.
What I find funny about the whole clearing situation is that it is only now coming to the fore. Go down to the CBOE and become a MM. Guess how many choices you have for your clearing firm: THREE, count them, 3: Goldman Sachs, Merril Lynch, and Fortis. Everyone else has been swallowed by these three firms, creating ZERO competition and artificially high rates. [This is a case where 3=0, and if the truth be known, it is really just two, because Fortis is horrible. Actually it is only one, because Merril Lynch is just a little better than Fortis. And you guessed it, Goldman Sachs is actually good, but their rates are atrocious bordering on rape. Why? Because they can with impotent competitors.] And yet, no one complains. Too bad Timber Hill will not clear Market Makers on the CBOE. It seems like that would make the playing field level again. nitro