Southwest Securities' Technical Troubles May Put Off Suitors

Southwest Securities (SWS Quote) has been openly up for sale, or at least had investment banker Bear Stearns looking for a partner, for the past two months. Potential buyers, though, would be wise to read the fine print before writing a check.

What they'll find is a complex Dallas-based firm where revenues have skyrocketed, in part due to clearing and executing trades for daytrading firms. But that ballooning volume has stretched Southwest's technical and personnel resources and irked its broker-dealer customers enough to cause some defections, while at the same time catching the eye of New York Stock Exchange examiners.

Though the company and one analyst say the technical problems won't hamper the company's acquisition hopes, it's clear any buyer will have to digest these lingering problems. In addition, an acquirer would have to swallow Southwest's reliance on daytrading. While investors were hot for Charles Schwab's (SCH Quote) purchase of a daytrading firm earlier this year, regulators have spent the past year clamping down on the practice, which involves rapidly jumping in and out of stocks. ...