Date of Award

1994

Document Type

Thesis

Degree Name

Master of Business Administration

Department

Business

First Advisor

Daniel W. Kemper

Second Advisor

R. Patrick Akers

Third Advisor

Jan Kniffen

Abstract

This thesis will focus on the settlement process in the securities industry and the different methods and frequencies by which securities firms disburse payments to their customers.

Many brokerage firms have realized the value of technological advancements in cash management services and have invested large dollars in their systems capabilities to remain competitive . Other firms do not have the resources to invest in such systems. To stay competitive, many firms are now looking at customer service, focusing on customer payments as a marketing tool.

Historically, securities firms exploited the financial success in their customers' accounts to offset the lack of modern payment practices. Checks for sales of securities were mailed weekly at best, while dividend checks were often mailed monthly. As long as their portfolios grew, customers were willing to overlook late payments.

Soon the Federal Reserve developed measures to control the risk associated with float in the payments system. Kiting scandals and Ivan Boesky highlighted the ethics within the securities industry. Firms, eager to increase their market share, made changes in the payments systems. Clients became aware of the time value of money.

The objective of this study was to examine various firms payments method to their clients. Specifically, this study targeted the disbursement process as a marketing tool and a competitive advantage. Has technology brought the brokerage firms a new tool to gain the competitive edge? Will the younger generation of investors, brought up in the age of electronics, look for a firm with this technology?

The hypothesis tested the theory that securities firms will need to be cognizant of payments to clients, and that technology, customer awareness and new entrants into the industry will drive firms to re-evaluate their settlement policies.

Survey results from 26 participating firms and subsequent interviews supported this hypothesis. Brokerage firms are becoming increasingly mindful of their client's awareness of settlements options. Additionally, other firms are already offering other payment options, most notably electronic payments and interest bearing accounts, to gain a competitive advantage.

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