At the turn of the 20th century, the financial markets saw the beginning of the end of traditional brokerage. While self-directed, online trading was quickly gaining traction in the U.S., customers of many foreign financial institutions still had limited access to U.S. markets via these means. Over time, as access to the internet improved globally, demand grew from FFIs to expand their global brokerage services.What is driving this demand?
Many non-U.S. citizens want to access U.S. markets for a variety of reasons including:
- transparency and liquidity offered by investing in U.S. stocks
- diversification from their home country’s currency
- access to some of the largest publicly traded companies in the world
Another driver of demand for access to U.S. markets is the growth of financial technology-based brokerages and advisors, also known as “fintech firms”. According to Deloitte, from 2008-2020, 429 investment management fintech firm start-ups received financing with UK and Singapore firms receiving the most initial capital outside of the U.S.
The growth of fintech firms has introduced new concepts through technology to investors. These new technologies have created segments such as robo-advisors, a class of financial advisor that provides financial advice or investment management online or through mobile apps with moderate to minimal human intervention, and fractional share investing which allows investors to buy a set dollar amount, sometimes as low as $5-$10 worth of stock in a single trade.
These new technologies and services have left many traditional brokers scrambling to lower commissions and offer more services to their customers than ever before.What should non-U.S. broker-dealers consider when offering U.S. trading to their customers?
When looking to enter the U.S. markets, many FFIs and fintech firms are concerned about the added costs and strain on resources. Perceived barriers to entry such as market access, the cost of the technology, the account opening process and ability to access customer information in a timely manner are FFI’s top concerns.
- Navigating Regulations
Often, non-U.S. foreign institutions have questions about regulatory obligations that must be met with bodies such as FINCEN and the IRS. The key is to seek out a provider that can provide guidance, assistance, and solutions to lessen the burden on your compliance team.
- Safekeeping of Assets
Another important consideration for a non-U.S. broker-dealer when offering trading capabilities to customers is custody and clearing. The strength of the clearing firm, its competencies and balance sheet are major factors to consider when choosing a custodian. Another decision that needs to be made when launching U.S. trading for your firm is the type of accounts used to settle and custody the trades. The type of account an institution decides to use is based on what the local jurisdiction allows and what makes most operational sense for the institution.
Some groups prefer an omnibus account, which is a securities account used by an introducing brokerage firm to maintain appropriate custody of underlying securities for the purpose of satisfying the custody obligations of the broker-dealer towards its customers. While this solution may work for many firms, some firms prefer to work with fully disclosed accounts. A fully disclosed account is an account carried by a custodian in the name of the underlying accountholder, rather than the name of the introducing broker.
- Trading Technology
Another common question is whether new technology must be developed to trade, settle and service accounts when a foreign institution trades in the US. While there are many solutions available for U.S. market access through various vendors, it is helpful to find a turnkey, one-stop service provider that can offer services such as custody and clearance, account management services, Customer Identification Programs (CIP)/Anti-Money Laundering (AML) compliance programs, IRS compliance assistance, strong customer service support, white label trading platforms and mobile apps.
Finding the right partner can make the integration process cost effective and seamless for non-U.S. foreign financial institutions and fintech firms.
Over the last 20 years, ViewTrade has provided solutions to help banks, broker-dealers, advisors and fintech firms spanning 4 continents achieve success offering their customers access to the U.S. markets. ViewTrade provides a full breadth of business to business (B2B) services to set up your U.S. brokerage offering locally. Through our ever-expanding suite of APIs, regulatory technology (regtech), trading technology and service options, we can assist your firm in exploring new revenue generating opportunities, and we can help your firm stay compliant with IRS, FINRA and SEC regulations so you can focus on your business growth.
I invite you to contact us to discuss these questions in greater detail.