10 May 2021
One of the most critical decisions faced by any trader is how to select a clearing broker with whom to partner. The broker that provides your clearing services will play a significant role in the success or otherwise of your trading activities, be that on your proprietary behalf or on behalf of a client.
You need to carefully consider several different factors, being sure that the clearing broker you select can guarantee precision, accuracy, complete security as well as the support you need when you need it.
Financial markets evolve rapidly, so you need to be confident that your provider can continuously adapt to reflect these changing demands without too many additional costs being incurred or the quality of the service being impeded. The service you receive should be future-proof, quick to adapt to technological change and any changes in the regulatory environment.
Bearing all this in mind, how do you go about selecting the right broker for your clearing and custody services?
Your clearing services provider should be able to provide you with all the essential electronic information you require, including trades, profit and loss, margins, fees, bank balances and collaterals.
The clearance and settlement firm should outline the detailed specifications of all the files and functions they will supply and when and how they will be delivered.
As well as the information being provided goes without saying that the accuracy and robustness of that information need to be as close to guaranteed as possible.
Pricing should not be the only determining factor in the choice of a clearing services provider. That said, price does, of course, matter, and the pricing structure needs to be tenable.
Are fees fixed and non-negotiable, or can they be tailored to meet particular client requirements?
What is the minimum revenue the clearing broker requires you to pay, even if your trades that month are zero?
Some clearing and custody brokers have relatively high minimum revenue requirements; others are more flexible, allowing you to begin with a low minimum and then scale up over time.
Some companies will have a minimum revenue requirement that is tied to the services you use.
Providers of clearing services will usually require a minimum deposit. The baseline deposit requirements will vary, with some requiring well into the millions. As with revenue requirements, the minimum deposit value often reflects the range of services that you use.
Managing risk is critical, and to do this, clearing brokers will limit the volume you can trade per day. The risk limits will usually reflect the minimum deposit requirements. This means that as the amount traded per day increases, the minimum deposit required will be increased.
Global markets operate on a 24-hour basis, so clearing services and custody banking should be available during trading hours. The support offered should be timely, efficient and direct.
When considering clearing brokers, make sure you understand how support will be provided and when it will be available. Ideally, any clearing broker should be contactable 24 hours a day, five days a week.