Managing A Securities Brokerage House

1
Managing A Securities Brokerage House

• Dr. Victor S. Limlingan Joint AIM-Wharton
  Seminar

2
The Way to Nirvana

• Three States of Being
• Four Noble Truths
• Five Pitfalls
• Six Paths to Success

1
3
Three States of Being

• 1. Foreign Broker
• 2. Captive Broker
• 3. Independent Broker

2
4
Four Noble Truths

• 1. No barriers to entry
• 2. No economies of scale
• 3. Owners presence vital
• 4. Client business divisible

3
5
No Barriers To Entry

• No ownership restriction
• No management restriction
• No branch restriction
• No market share restriction
• No local debt restriction
• No foreign debt restriction

4
6
No Economies Of Scale

• Backroom operation done through mini-computers
• Large trading volume can be done by few traders
• Fundamental analysis open to public
• Technical analysis done through cheap and easily
  available computer programs
• Seminars open to everybody

5
7
Owners Presence Vital

• Enormous Liability
• Negotiable Instruments
• Verbal Commitments
• Discretion given by clients
• Agency problems

6
8
Client Business Divisible

• Client business can be spread to several brokers
• Clients may prefer to use several brokers
• Clients may choose different brokers for
  different stocks
• Clients can easily switch from one broker to
  another

7
9
Five Pitfalls Of Management

• 1. Taking a position
• 2. Tempting your staff
• 3. Extending margin loans
• 4. Depending on a bull market
• 5. Fighting a bear market

8
10
Taking A Position

• Will distract from broker role
• Creates conflict of interest
• Clouds objectivity in advising clients
• Could lead to significant losses
• broker controls excesses of clients
• nobody controls excesses of broker

9
11
Tempting Your Staff

• Exposed to clients good fortune
• Limited financial resources
• Unlimited financial expectations
• Knowledgeable about weak spots in companys
  control system

10
12
Extending Margin Loans

• During a bull market, an unnecessary service to
  the client
• During a bear market, a distasteful task of
  management
• During a dull market, an unfamiliar business
  (banking) for the broker

11
13
Depending On A Bull Market

• Staff strength should be based on bear market,
  during a bull market do not increase staff but
  rely on computerization, staff overtime or as a
  last resort outsourcing
• Bull market should be used as the time to beef up
  financial reserves to weather the next bear market

12
14
Fighting A Bear Market

• Refrain from generating artificial volume
• Review exposure to clients
• Encourage staff as well as yourself to use
  vacation leaves
• Prepare for the coming bull market

13
15
Six Paths To Success

• Be a discount broker
• Be a retail broker
• Be a network broker
• Be a specialist broker
• Be a tax haven broker
• Be a private broker

14