Clearing Firm's Chief Sees Banks as Insiders Now

As managing director of Pershing, the securities-clearing unit of Donaldson, Lufkin & Jenrette, Alton C. Jones has seen banks grow from peripheral players to a more central force in the brokerage business.

Along the way, he said, banks have become more demanding customers.

As they have overcome barriers to entering the securities business in recent years, Mr. Jones said, banks they have added services to their investment menus.

Now that they offer more equities and managed , asset allocation, and wrap accounts, banks are looking to firms like Pershing for services that support these new activities, Mr. Jones said in a recent interview at Pershing's Jersey City headquarters.

In response to growth at bank and nonbank brokerages alike, securities clearing firms like Pershing are moving beyond their traditional role of clearing and executing trades, Mr. Jones said. These firms offer a broader list of services, necessitated by new regulations and burgeoning product lists.

"It has gotten more complex because there are more services," he said. "Your entire approach is different."

Five years ago about 75% of Pershing's business was clearing and executing trades, Mr. Jones said. Today, that's down to 60%.

Increasingly, Pershing helps clients construct a variety of accounts. It also executes and clears trades, consolidates information, and reports back to the customer.

Clients like First Chicago NBD Corp. said they lean heavily on their clearing firms. "I think it's fair to say that they are a huge partner to us," said Richard K. Hawes, president of First Chicago NBD Investment Services.

First Chicago is particularly pleased with a new Internet product for broker stations that Pershing is tailoring to fit the bank's needs.

While clearing firms are admittedly looking for ways to get more "share of the wallet," Mr. Jones said, they can consolidate information efficiently for the bank because they already have the data on hand.

Pershing employees who work with prospective and actual clients have changed immensely in recent years, Mr. Jones said. The new relationship managers are highly trained in technical and product issues, allowing them to consult more with customers than was traditional.

Banks desire such consultation from partners that are also knowledgeable about wire houses. Over the past three years, more bankers have shown interest in learning about the industry as a whole, he said.

New regulatory requirements continue to change the business of clearing firms, Mr. Jones said.

"The clearing organizations have to basically build the systems, change the systems, and provide the resources to insure that the broker-dealers will be in compliance with all these regulatory changes," he said.

For instance, Pershing has spent about $500,000 on an industrywide pilot program that reports the actual cost of a trade and why it was accomplished at a fair price. The idea is that trades should not cost clients more than they do professional traders, Mr. Jones said.

The program's expansion from its initial 50 stocks will cost Pershing millions and trim margins, Mr. Jones said.

As clearing firms continue to diversify, the differences between firms will also increase, he said.

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