Fidelity Investments of Boston has launched a Canadian clearing business, but it will have its work cut out to gather share in a market dominated by three players.
Fidelity Clearing Canada ULC was introduced Thursday to provide clearing, custody and back-office services to Canadian brokerages and the Canadian brokerage arms of U.S. companies, according to Richard N. Hart 3rd, a senior vice president of Fidelity's U.S. clearing arm, National Financial.
In an interview Wednesday, Hart said there has been "increased demand from U.S. customers with an established Canadian presence or from those thinking about establishing a Canadian presence" for Canadian clearing services.
There is an opportunity to gather clearing business in Canada from the 200 registered broker-dealers in the markets, Hart said.
Richard Ness, the acting chief executive of Fidelity Clearing Canada, said in an interview Wednesday that there are about a half-dozen companies that offer clearing services in Canada, but three companies — Penson Financial Services Canada Inc., a unit of Penson Worldwide Inc. of the U.S., Toronto-Dominion Bank and National Bank of Canada — service 96% of the market.
Fidelity Clearing Canada opened with two clients on its platform — Integral Wealth Securities Ltd. and execution specialist JitneyTrade — and expects to add two or three more by the end of the year, said Ness, a former president and CEO of Penson Financial Services Canada. He said he hopes to have "eight to 12 customers by this time net year."
"That number of customers and adding a bunch of small customers really won't move the needle," he said. "We hope to have about 4% to 9% market share by the end of next year."
Based in Toronto, Fidelity Clearing Canada will offer back-office support such as trade execution, clearing and custody. In addition, it will support a platform of investment products, including mutual funds and individual securities, as well as brokerage technology for firms and their brokers.
Longer term, Fidelity Clearing Canada has grander plans, Hart said. "Our goal, long term, to be a top-echelon clearing firm in Canada is attainable and achievable," he said. "I don't know how long it will take, but we are building this business to deliver quality services to our customers. We are not in it to be a small player."
In the United States, National Financial, of New York, services more than 300 broker-dealers and had $520 billion of assets under administration. It is the largest provider of clearing services to bank-owned wealth managers, controlling 60% of that market.
It will be more difficult to add assets through the Canadian banking sector, Ness said, because it is "very concentrated" and all of the large banks own their own self-clearing unit, he said.
"The real measure of our success will come if we can provide enough efficiencies to force them to outsource," Ness said. "We'd like for that to happen, but it is unlikely in the next two or three years. We will need to achieve critical mass before that is economically possible."
Fidelity is looking to expand at a time when many U.S. wealth management companies are retrenching. Burton Greenwald of BJ Greenwald Associates in Philadelphia said it makes sense for companies to look to add assets in existing businesses, but moving into new sectors and new geographic markets can be risky.
Fidelity has an established unit in Canada — Fidelity Investments Canada, which had $49 billion of assets under management on Aug. 31. Hart said that though it is small compared with its parent, which had $1.4 trillion of assets under management, it has continued to develop assets. "We at Fidelity are continuing to grow all of our businesses," he said. "This is really one of the privileges of being in a privately owned company. We can invest for the long term. We are taking this opportunity to invest in something that we see as a growth market."
