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"Miami-based Broker WebStation,
has been working with Wall Street Electronica's clearing firm
Herzog, Heine, Geduld Inc. to develop an application programming
interface that will allow the brokerage to automatically route
most of its incoming orders for U.S. equities to all of the
major exchanges through Ridge Clearing. The system went live late March
and Wall Street Electronica expects that licensing the new
BWS system will help its order routing to become faster and
more efficient. "
When the chairman of Web Street Securities explains how his
firm lands so consistently at the top of several national
rankings of online discount brokerages, he replies, "customer
service is exemplary -- it goes beyond answering the phone."
Though
his answer sounds rehearsed, implementing the elements that
have contributed to Web Street's high rankings is anything
but routine, as Web Street's chairman Joe Fox discovered.
When Web Street requested specifications that called for features
like real-time customer account information on its Web site
almost two years ago Web Street's clearing firm said it was
impossible. Despite the discouragement, Fox went ahead and
built tile site anyway --on his own dime. He hired half a
dozen consultants and used his own in-house set of developers
to build Web Street's own databases and systems to support
many of the site's re, al-time features. As a result of this
effort, Web Street's clients can watch their market orders
being executed in less than 10 seconds and see their account
balances and positions adjusted immediately.
And
now less than a year after its launch last July, Web Street
Securities ranks as the number five highest scoring broker
in Gomez Advisors' 1998 first quarter overall best online
discount broker category. CLEARING'S NEW ROLE The online retail
trading explosion has morphed clearing firms' business roles
and redefined their relationships with their clients.
Traditionally
involved in the more arcane area of back-office processing,
correspondent clients' Web sites are shining the spotlight
more intensely on the information processing capabilities
of their clearing firms, who are being forced to respond to
the real-time processing demands of online brokerage sites.
In fact, clearing firms are playing an increasingly important
role in shaping their correspondent clients' public images
as they help brokerages to set up their online channels, which
are then ranked by prominent financial publications. Can clearing
firms cope?
As
Web Street Securities' example shows, not always. Even though
an increasing number of clearing firms have started to roll
out online trading and Web site building packages, that does
not always mean that they're offering cutting edge tools or
services.
In
addition to having the resources, the new relationship between
brokerages and their clearing firms is about more than just
providing correspondent clients with the ability to throw
up a turnkey online trading site overnight. It's about understanding
new business models and helping correspondents to rejigger
their operations to adapt.
Several
online discount brokerages have been forced into reexamining
the efficiency of their operations, for example, as they cope
with the plunging level of commissions generated for each
trade that they handle. To streamline their order routing
processes, however, fullly disclosed brokerages need to work
closely with both their clearing firms and most often with
Ridge Clearing, which provides the infrastructure for routing the orders
to the appropriate exchanges.
COMMUNICATION
BREAKDOWN Anybody out there? That's a sentiment echoed by
both full service and discount brokerage firms who rely on
their clearing firms to move ahead with their operations revamping
projects. One discount brokerage source who didn't want to
be named says, for example, that its own efforts to streamline
its trading operations has been effectively frozen because
its communication lines to its clearing firm BT Alex. Brown
have been diminished due a shift in staff roles following
Bankers Trust's merger with Alex. Brown & Sons.
But
complaints about technology have to be taken in context, says
Pershing's managing director Alton Jones: "There is probably
nobody in the business that makes everybody happy when it
comes to technology -- you can't deliver it fast, cheap or
customizable enough to satisfy, every broker," he says. Ultimately,
whether clearing firms can provide the technology or not,
they should at least act as facilitators of access to information
technology, says Gib Veconi, New York City-based Wall Street
Access' chief information officer. "Technology is a very important
requirement of a discount firm's clearing broker, whether
it's something provided by the clearing firm or whether it's
something just facilitated by the clearing firm," he says.
Even
regional full service brokerages are getting into using the
Web as an information distribution and trading tool, because,
as Sandy Logay, senior VP o[ the trading desk at First Financial
Securities (FFS), in Chesterfield, Mo., says, "You've got
to be able to deliver information out to reps in any location
and through the Internet and the PC this is possible."
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