The Unloved Clearing Clients

Updated to add video NEW YORK (TheStreet -- Scandals and brokerage consolidation are making it difficult for smaller financial firms to find a company for back office operations or clearing activities.

Demand hasn't decreased. There are numerous brokers wanting to leave jobs at government-owned banks and strike out on their own. Add to that the companies that are creating new trading platforms for options or even illiquid securities.

"It was a real challenge," says John-Paul Teutonico, Chief Administrative Officer of Second Markets, of getting a company to clear its transactions. This firm capitalized on trading auction rate securities after the instruments were abandoned by the banks like UBS(UBS) that sold them.

Teutonico points out: "The big firms need volume to make money and they need a company that doesn't make many mistakes so the automation can stay in place. Smaller firms have more trades fail and that throws a wrench into the machine of the big companies. So they don't want to clear for small firms anymore."

At one time Bear Stearns cleared for over 400 broker dealers, now owned by JPMorgan(JPM) that number has dwindled to 232 as of July. JPMorgan declined to comment for this article.

Making the Illiquid - Liquid