Dirt cheap interest rates and low trading volume, which only recently has begun to pick up, plague clearing brokers, Traders Magazine reports.  "This is really a big deal for a lot of firms.  Margin business can make up 25% of a typical firm's revenues," says industry analyst Doug Dannemiller of the Aite Group.  He adds that margin combined with transaction volume comprises about half of the typical firm's business.

"If you don't have the scale and an efficient platform, you are in trouble. I think a lot of core players will have challenges over these issues."  -- Steve Sadoff, CIO for Knight Capital Group.

"Spreads on margin loans used to be two or three percent. Now they're almost nothing."  -- Craig Gordon, President of RBC Dain Rauscher Correspondent Services.

Gordan adds that the only way to make significant money in this environment is through a large volume of margin loans.  Ironically, even low interest rates haven't induced many investors to borrow.  As a result, some firms find it almost impossible to turn a profit on their money market/sweep accounts - and some are running them at a loss.  Interest rates would have to climb 50 to 75 basis points i just to be whole again. 

    Two-Fold Industry Impact.   First, with the fallout being felt across the business, further consolidation of the clearing business becomes a real possibility.  Second, it probably should not come as a surprise if the clearing firms raise the other fees categories - those that make up the other 50% of a clearing firm's revenues. [TradersMag Online, 11/5]