Clearing Firms Are Raising Capital & Liquidity Requirements.
Will Your Broker Dealer Be Ready?
Some clearing firms are trimming introducing brokers
We estimate that there are hundreds of boutique IBDs nationally that do not have the capital that top tier clearing firms will require going forward. Wall Street Access has been very disciplined over the years at keeping the business well capitalized with an emphasis on liquidity and reinvestment. Our 34 years of successful operation, coupled with our healthy balance sheet, quality reputation and first class clearing make us a very attractive partner for firms looking for a strategic partner.
Wall Street Access has maintained a strong, liquid balance sheet through several challenging market cycles. This conservative, well managed approach to the business is what attracted me and my team to Wall Street Access when we moved from our former firm four years ago. Our team was also attracted to Wall Street Access by the quality of its operations department, its strong clearing relationship with a major clearing firm, and its experience in managing different lines of business. Our approach continues to attract professionals who are concerned about how the growing regulatory and minimum capital requirements are affecting their ability to serve clients effectively.
Traders and firms know Wall Street Access has successfully integrated a number of teams and — with more than $10 million in regulatory net capital — we’re well-positioned to be a solution to the challenge of clearing firms increasing their requirements.
The number of broker dealers is virtually unchanged over the past five years, despite capital and compliance pressures, but that is about to change. With the clearing firms imposing new capital requirements, firms with less than $5 million of capital will be severely challenged to execute for clients.
While many analysts think of new financial regulations like Basel III as affecting only large, money-center banks, many introducing broker-dealers (“IBDs”) are starting to feel the impact. Due to the increased capital and liquidity requirements, clearing firms are carefully reviewing the IBD’s that clear through them for the risk they present versus the promised economic reward. It is our belief that top tier clearing firms have already begun off-boarding introducing broker dealers with under $5 million in net capital who generate little revenue. We believe that this off-boarding process has already begun and will continue over the next 6-18 months.
Many introducing broker dealers know they have a capital problem, but cannot or will not invest additional capital to address it. Conducting business as usual will not, in our opinion, be an option for IBDs with less than $5 million in net capital. They must choose to increase net capital, increase the clearing deposit held with the clearing firm, find a new clearing firm (who may or may not be acceptable to the IBD’s clients), or find a better-capitalized strategic partner.
A sector of hedge funds and money managers that are being faced with similar challenges can turn to Wall Street Access as a strategic partner to custody assets, provide global execution services, make introductions to third party marketers and provide risk management analytics.
Wall Street Access has cultivated a highly ethical, dynamic and cooperative culture that attracts professionals from all corners of financial services who thrive in a conflict-free, non-bureaucratic environment that offers the resources, support and freedom for them to succeed based on their own strengths, experience and ambition.
Hundreds of firms with less than $5 million in net capital will be asked to increase their capital
Broker dealer capital requirements will quickly become a client concern
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Vice Chairman &
Director of Research
Chief Executive Officer
Institutional Sales & Trading
Learn more about new capital requirements and the potential impact on you and your business through these resources.