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Clearing Firms Extend Their Outsourcing Businesses

January 1, 2007
By John Hintze

On the institutional and professional trading front, Penson Worldwide of Dallas in November announced the acquisition of Chicago-based futures clearer Goldenberg Hehmeyer & Co. The acquisition rounds out Penson's ability to clear and execute trades in futures, options, equities and foreign exchange in light of the growing demand for multi-asset-class trading. Penson is now preparing to accommodate portfolio margin accounts, which are expected to receive Securities and Exchange Commission approval by year-end.

Portfolio margining will reduce the collateral requirements for customers trading in multiple asset classes. "It will increase existing customers' trading volumes, because it will provide qualifying customers with more realistic leverage requirements than current ones, and we think it will create additional opportunities among prospective customers," said Penson CEO Philip A. Pendergraft.

Penson builds much of its technology in-house, as do other clearers and correspondents that support their business strategies with customized and proprietary applications. But not even the largest clearers with long menus of technology services can meet every client need. As a result, clearing firms are increasingly offering their in-house development staffs to clients on an outsourced basis, and Pershing is considering how to offer the services of its software development unit based in India. "We're formalizing the infrastructure around this and plan to offer it more broadly to broker-dealers," Crowley said.

For a clearing firm, the outsourcing of software development is a new way of doing business, but Aite's Honoré pointed out that there are plenty of highly experienced competitors. If Pershing, with more than 1,000 broker-dealer correspondent firms, has an advantage, it's what Honoré described as "the account penetration to talk to all right people."