DEFINITION of 'Carrying Broker'

Carrying broker refers to a commodities or securities broking firm that provides back office functions. A carrying broker offers clearing, settlement and custodial services to other brokers. The carrying broker; therefore, enables other brokers, known as introducing brokers, to provide full service to their clients without incurring the sizable start-up and maintenance costs of running a back office. Introducing broker/carrying broker relationships have existed in the United States since the mid-1970s. Leading carrying brokers include Pershing LLC, Hilltop Securities and Apex Clearing. Prominent investment banks, such as Goldman Sachs and J.P. Morgan also offer carrying services.

BREAKING DOWN 'Carrying Broker'

The benefits of using a carrying broker include cost efficiencies, economies of scale and risk mitigation. It also allows the introducing broker to focus on its core competencies, such as portfolio management, client relationship management and marketing of products and services. Carrying brokers provide additional services, such as maintaining records of client transactions and preparing and distributing client statements and confirmations. Some carrying brokers even offer to finance client margin accounts.

Selecting a Carrying Broker

Consider the following when choosing a carrying broker:

  •  Availability of Information: A carrying broker needs to provide dynamic information regarding processed settlements, margin requirements and required collateral. This data helps the client manage risk and meet banking obligations. To facilitate a sophisticated transmission of data, the carrying broker should offer an application programming interface (API), which enables the client to assess information in a way that is compatible with their proprietary software.

  •  Operational capability:  It is essential that a carrying broker can adapt to a variety of business models and meet the specific needs of its clients. For example, if an introducing broker wants to start trading on a new exchange or trade a different financial instrument, the carrying broker needs to have the capability to facilitate the request.

  • Support: A good carrying broker provides 24-hour support and assigns each client with an account manager to ensure all queries get adequately resolved. For instance, if a client has a question about their daily settlement exposure, the carrying broker should have a designated account manager who can promptly provide the information.

  • Costs: A carrying broker needs transparency with its fee schedule to help clients avoid hidden costs. Charges relating to transaction administration, stock loans and exchange fees should be specified. Carrying brokers are typically prepared to negotiate their fees with institutional clients. For example, stock loan fees may get waived for a client whose dollar settlement turnover exceeds a certain amount each month.

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