Broadridge Financial Solutions (NYSE:BR) today released the following statement in response to recent inquiries related to a large clearing transaction that was disclosed in its Form 10-Q filing for the period ended December 31, 2007, its risk management practices and its clearing and outsourcing strategy.
The transaction that caused a rise in our short-term debt level to $426 million at December 31, 2007:
The $380 million transaction in question involved 143 specified pools of AAA-rated mortgage-backed bonds issued by the Federal National Mortgage Association (FNMA). These securities are liquid and have low price volatility. There were no exotic or illiquid mortgage-backed derivative securities in this transaction. The party who had committed to purchase these bonds is a global financial services company rated A+ by Standard & Poor's. Consequently, Broadridge's risk in this transaction was low. The transaction settled and the related loan was repaid on January 17, 2008, as previously disclosed.
Risk management practices at Ridge Clearing & Outsourcing, our broker-dealer subsidiary:
- Ridge restricts the amount of credit extended to both individual and professional investors to amounts much lower than permitted by Federal regulations, and requires all loans to be fully collateralized by high quality, readily marketable securities. Ridge does not accept as collateral any exotic or illiquid mortgage-backed derivative instruments.
- Ridge does not use any of its capital to maintain an inventory of securities to be offered for sale to its clients. None of its capital is exposed to market fluctuations in proprietary trading accounts.
- From the time of its acquisition in 2004, Ridge has experienced no losses due to errors or credit policies, and it has a customer retention rate of over 90%.
Clearing and Outsourcing Strategy:Broadridge created the clearing outsourcing model and estimates the market opportunity to be over $500 million. By combining the world class transaction processing capabilities of its Securities Processing Solutions segment with the specialized clearing expertise provided by Ridge, Broadridge created a unique service offering for broker-dealers with the size and financial means to finance their own businesses, but at the same time outsource to Broadridge their systems and back-office operations processing.
Broadridge is the pioneer and leader in the clearing outsourcing business. Since introducing the outsourcing solution, it has signed six clients representing $20 million in annual revenue and believes the clearing outsourcing solution is a global opportunity. Ridge operates to facilitate Broadridge's outsourcing strategy, the goal of which is to grow all of Broadridge's processing businesses.