Instinet, citing both customer quality issues and possible savings, has been clearing its own options trades for several months, dispensing with a third-party broker.
“Since Instinet has self-cleared on the equity side for a long time and is consistently ranked in the top 10 in volume, we already had the necessary technology infrastructure and clearing group in place,” Luke Mauro, Instinet’s head of global operations, told CQ&D. “Given that, it was just a question of reaching a critical mass in terms of volume for it to make sense to self-clear our options business.”
He said the agency broker had been examining self-clearing for about a year before it went ahead with the project in the spring.
“We were just waiting for the options to hit mass on the options volume. We already had the infrastructure on the technology and people side because of the equity business,” Mauro said.
Instinet officials, who wouldn’t disclose the number of trades they are now clearing, said they would see “significant savings” because of the move. But an even bigger factor in going to self-clearing, they added, was the quality of the trade execution that their primarily institutional clients expect.
“The ability to offer clients post trade settlement allocation was a key driver for us doing this,” said chief strategy officer John Duffell.
“We have a very good clearing infrastructure and team in place,” Mauro noted. “By self-clearing our options trades, we felt there would be fewer mistakes and we could do things much faster by not having to reach out to a third party.”
That means Instinet will be able to offer options trading throughout the day and clients will have control over where trades can settle.
By contrast, some firms only allow post-trade allocations at the end of the day. These services, without the self-clearing option, mean charging the client a large fee, Instinet officials said.
Instinet clients run the gamut of institutional clients, including broker-dealers and professional investors.
Instinet had been using Penson Financial as the third-party broker to clear its options transactions, industry sources said. Instinet officials would say little about their former clearing broker, but said they had been happy with it.
Instinet has raised its options trading profile since it acquired Torc Financial in 2009. Torc develops and sells financial automation software, helping trading firms process equity, options and futures transactions.
Since the Torc purchase, the brokerage’s options business has increased several fold, Instinet officials said.
Instinet has been clearing all its equities trades in the U.S. Its trade execution numbers place it as one of the biggest volume brokers.
Would Instinet now consider clearing for others or helping others self-clear? Company officials said they would never rule anything out over the long term. Still, they added, it is too soon to consider these issues.
Said Mauro: “We’d never say never, but right now it’s just not on our radar.”
