Citicorp Ready to Start Global Clearing Service
Citicorp will launch an international securities clearing operation for brokers and banks by yearend, a significant step in the bank's attempt to corner this wholesale business.
Last spring, the bank signed an agreement with the International Securities Clearing Corp., a trade group of dealer brokers. The deal calls for Citicorp to act as the back office for brokers who trade foreign-issued securities.
Trades will be funneled through the ISCC to Citicorp, which will provide a one-stop clearing service for brokers by piggybacking on the bank's worldwide network of offices.
Dry Run in October
Citicorp will begin pilot tests for a handful of brokers in October.
"This gives us a broader reach of clients," said Mark C. Aprahamian, vice president. "And it gives brokers access to a broader market place at more competitive prices." Mr. Aprahamian said the bank has signed five new broker clients since announcing the alliance with the ISCC.
Even without those new clients, Mr. Aprahamian said the service will bring in more business from existing broker clients, by stimulating trading in foreign-issued securities.
In addition, by handling more clearing business, Citicorp expects to invigorate another nascent securities business, global custody. Citicorp is among the biggest global custodians, providing record keeping and accounting for portfolios of foreign-issued securities.
The global securities business has had substantial growth in the past several years as institutional investors have boosted their trading in foreign-issued securities, a way to diversify their portfolios. International assets now account for about 10% of U.S. investors' portfolios, with some big investment funds closer to 20%.
The bank has been testing communications links between its network and the ISCC for months. In October, the bank will test the clearing operation, taking electronic trade instructions from a handful of brokers and sending them clearing details. For the test, the bank will clear trades in handful of countries in Asia and Europe.
"The service is part of our strategy to be a dominant clearer and part of the infrastructure itself," said Mr. Aprahamian.
Citicorp's clearing service is expected to benefit from that surge in overseas investment. Most brokers are tied to a dozen clearing operations in as many countries.
Those individual clearers may not have a consistent level of service or reporting.
By relying on its own offices and communications network, Citicorp said it can supply a consistent, and cost-efficient service across the major trading markets.