Over the years, the lower-margin, less-profitable part of financial services — back offices, trading operations, mutual-fund management — has left expensive Manhattan in search of lower costs.
At first sight, the "sponsorship" clause might seem to apply to prime brokers, the bank divisions which supply hedge funds with finance, back-office and trade-execution support, investment advice, technology and a whole lot more.
The exchange, for example, currently outsources its clearing operations, which include the back-office processing of trades, to LCH.Clearnet.
The National Grain and Feed Association has voiced concern over the extended hours, claiming there was insufficient time to close out and reconcile floor-trading activities and perform the required accounting and other back-office functions before electronic trading reopens.
The deal would make the Bank of New York the nation's largest clearing firm for stock trades, an essential back-office processing business that executes trades and manages all the related record keeping.
Indeed, in September 2005, he summoned the bankers doing the most derivative business to attend a meeting at the New York Fed offices for the first time since the 1998 Long-Term crisistandManagement (LTCM) crisis, and was able to get them all to agree to overhaul their back-office procedures for confirming trades on credit derivatives.
An acquisition by another exchange could offer other cost savings, for example, through reductions in the exchange's trading and back-office I.T. systems, as well as through a combination with another exchange's existing commodities divisions.
The trader's move from back-office management to front-desk trading harks back to the infamous Nick Leeson, whose position as both general manager and speculative trader for Barings Bank in Singapore helped him hide losses of over £827 million ($1.6 billion).
And policies to reduce the risks of failure at banks may cause moral hazard if they dull the incentive of individual firms to police their lending criteria.Mr Geithner encouraged banks to deepen the margin cushion they extend to counterparties and sort out back-office processing of credit-derivative trades as short-term ways to shore up the system.
The Michauds had built a prosperous business selling their software to investment companies until California financial advisory firm AssetMark offered the father-son team an easy path into the world of money management, giving them access to thousands of financial advisors and handling trading and other back-office functions.
