What Is a Carrying Broker?

A carrying broker is a brokerage firm that provides back-office support for other brokers. Examples of such support include ensuring regulatory compliance, recording and distributing client documents, and monitoring credit risk for margin accounts.

Key Takeaways

  • Carrying brokers provide back-office support for other brokerage firms, freeing their clients to focus on higher-value activities.
  • Due to economies of scale, carrying brokers can offer these services to their clients more cheaply than if brokers were to perform them internally.
  • Competition among carrying brokers is based on factors such as industry reputation, the timeliness and accuracy of financial reporting, and their fee structures.

Understanding Carrying Brokers

Brokerage firms often rely on carrying brokers so they can focus on higher-value tasks such as onboarding new customers or providing high-touch support to existing clients. These client brokerage firms are sometimes referred to as "introducing brokers."

Carrying brokers employ staff and technology that allows them to undertake back-office work at scale for a network of broker customers. Rather than each broker replicating similar administrative bureaucracies, economies of scale can be gained from simply outsourcing those redundant administrative tasks to a small group of carrying brokers. This frees their broker customers to focus on revenue-generating activities.

To attract this business, carrying brokers must market themselves on the quality of their personnel, systems, and track record. As is true in many businesses, larger and more established carrying brokers have an advantage over smaller and newer ones, which may be viewed as unproven. This dynamic is due in part to the fact that some of the activities delegated to carrying brokers can have serious legal and regulatory implications, such as ensuring that client accounts are not being used for money laundering or other illegal means.

Benefits of a Carrying Broker

Of course, there are other factors that clients consider when selecting a carrying broker, aside from their size and track record. One of the key areas in which carrying brokers must compete is in the breadth and timeliness of the information they can provide to their broker customers. The faster a carrying broker can provide accurate information regarding the transactions, margin status, and collateral level of their account holders, the more useful that carrying broker will be with respect to the client's risk management activities.

Carrying brokers will also compete on the basis of the different markets and product types that their clients are able to access through them. If a brokerage customer wants to start trading on a new exchange or using a rare financial instrument, for instance, the carrying broker should have the ability to accommodate this request.

Similarly, carrying brokers will seek to maintain high customer service standards while also offering competitive fees. Carrying brokers will often provide clients with dedicated account managers who can resolve all issues as they arise. When dealing with especially large or valuable clients, carrying brokers will often negotiate special fees, such as waiving certain margin or transaction costs as long as specified levels of volume or assets under management (AUM) are maintained.