Brokerage baulks at NZX costs

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McDouall Stuart Securities, the Wellington-based brokerage, will outsource its trading and settlement activity rather than face directly the approximately $10 million cost of stock market operator NZX's new clearing and settlement system.

"The upcoming introduction of the proposed central clearing system will have a number of capital and operational consequences that in our opinion will be likely to reduce the number of clearing participants operating, and will commoditise the back office," McDouall Stuart managing director Andrew McDouall said in a statement.

The firm will continue to offer client advisory services and execute trading instructions for them, but through intermediaries rather than their own operation.

"We are seeing this as an opportunity to focus on the front office and benefit from a competitive environment which we expect to develop in back office provision."

NZX's head of traded products, Fiona Mackenzie, told an investor day briefing last week that the exchange expected to invest around $10 million on a new clearing and settlement system, which is essential to creating new derivatives products in dairy, electricity and equities, which it sees as the key to future profitability and growth.

NZX has given member firms an indication of the pricing for the new clearing and settlement services for the first time in recent weeks.

McDouall said it was common for even some of the world's largest broking firms to outsource their back offices for economies of scale, and that clients would "experience very little difference to the service they have always received".

Mackenzie said the introduction of derivatives was expected to add six or more new trading participants, two or three from offshore; two or three new "general clearing participants", and two to three "global independent order routers".

- BusinessDesk