Glendale Securities, Inc.’s CEO Eric Flesche talks with Opportunist’s Managing Editor Leslie Stone about the changes he has seen in the industry through the years and what makes his company unique.
Capital markets have undergone some pretty major changes in the last few decades. Technology has played a major role in the transformation, but so has the way in which markets are structured. As chief financial officer of Glendale Securities, Inc., based in Sherman Oaks, Calif., Eric Flesche has witnessed many of these changes first hand. “Decimalization was a big change that has really transformed the industry,” he says. “I actually prefer decimalization, but I think there is a case for minimum spreads for thinly-traded issues to increase liquidity. There has also been a strong shift to a focus mainly on compliance, sometimes to the detriment of the clients. We need regulation to keep out bad actors since they cast a shadow on the OTC/OTCBB marketplace; however, while we have embraced a culture of compliance, we find that many OTC/OTCBB issuers and their shareholders have been negatively affected. As a specialist in this space we believe in small business and want small business to succeed by raising capital that leads to the creation of jobs in America.”
Flesche believes that capital requirements for clearing firms after the financial crisis that were thought to address “too big to fail” have become so high that they have often had the opposite effect. “It seems there are fewer small firms and a concentration of ‘too big to fail’ firms in the clearing space,” he says. “One of the most egregious capital requirements affecting clearing firms are the NSCC [National Securities Clearing Corporation] illiquid charges for OTC/OTCBB stocks. For example, if a client sells 100,000 shares of a stock that trades at $0.10, NSCC could require the clearing firm to post 10 times the sale price totaling $100,000 until settlement date for a trade that nets $10,000. Multiply this activity times many clients and it’s not hard to see that a clearing firm can run out of capital quickly in order to meet these illiquid charges. NSCC should publish statistics showing how much is collected on an aggregate basis from all clearing firms on a daily basis for these illiquid charges. This way it could be analyzed to see if these charges are in line with the perceived risk of a clearing firm going into SIPC liquidation.”
Glendale Securities specializes in the OTC/OTCBB marketplace and works with domestic as well as overseas clients.
Opportunist: Please tell us a little about yourself and how you got into finance.
Eric Flesche: I earned my Bachelor of Science degree in finance from the University of Houston in 2000. Typically a degree in finance would lead me to an oil company since Houston isn’t a securities town, but while I was in college I had a chance to intern with a small brokerage firm and I obtained many of the securities licenses while there. (I currently hold the Series 3, 4, 7, 9, 10, 24, 27, 53, 55, 63, 65, and 79 securities licenses.) When my then-girlfriend, who is now my wife, decided to move back to California after graduating college, I chased her to Los Angeles. [Laughs]
The securities licenses I had were in demand and I quickly landed a job on the OTC order desk at Dreyfus Brokerage Services Inc., which was owned by Mellon Bank at time. This division was then sold to JPMorgan in 2002, and in 2003 JPMorgan decided to relocate all staff to their Tampa office. I didn’t want to leave Los Angeles so I landed a job with JBOxford & Co. / National Clearing Inc. where I met George Castillo, owner of Glendale Securities, Inc. In 2004 JBOxford & Co / National Clearing Inc. was acquired by Ameritrade so I left to join brokersXpress, a division of optionsXpress, Inc. About a year after the acquisition, George approached me to join his company. Although it was stressful to have to change jobs so frequently due to acquisitions, it gave me the opportunity to gain exposure to multiple departments including sales, trading, margins, and financial reporting.
Opportunist: Who or what inspired you along the way, Eric?
Eric Flesche: Within four years I had been through two acquisitions and an office closing. As I mentioned, George and I previously worked at JBOxford & Co / National Clearing Inc. in Beverly Hills, which was acquired by Ameritrade in 2004. A year after the Ameritrade acquisition George was presented with the opportunity to run Glendale Securities Inc., which at the time was a small broker dealer with limited operations. George didn’t seem concerned about the layoffs and he was excited about the prospects of running a broker dealer. This was the reason I joined him at Glendale.
Eric Flesche: Online trading, certificate deposit services, 144 sales, form 211 filings, market making, DTC Eligibility. We specialize in OTC/OTCBB securities.
Opportunist: Can you tell us a little more about your online trading services?
Eric Flesche: Clients can enter orders on our online web based platform. Orders entered online for OTC/OTCBB securities in which we make a market go directly to our traders. Clients have the option to choose to enter the orders as held or not held, which provides additional flexibility in entering large orders.
Opportunist: What makes Glendale Securities unique in the industry?
Eric Flesche: Form 211 filings, market making, DTC Eligibility, specializing in OTC/OTCBB securities. There are fewer and fewer dealers in this space due to the high costs associated with market making, certificate deposits, and excessively high NSCC deposit requirements for OTC securities. Many broker dealers require clients to pay fees in order to deposit their physical certificate. Since there is so little competition in the industry, the fees that clearing firms are charging have skyrocketed to upwards of $1,500 for one certificate. What makes this worse is that some clearing firms keep the fee even if they decide not to accept the certificate.
At Glendale Securities we do not charge for clients to open an account or to do the initial review of the certificate. If we decide not to accept the certificate, there is no cost to the client. In the event that we do accept the certificate we will then charge the client for the deposit. Our deposit fee is currently $900. This makes us unique in the space.
Opportunist: How has Glendale endured in an industry where small companies don’t always survive?
Eric Flesche: I think it’s because we aren’t aggressive in our payout structure. Our salaries and bonuses on pre-tax net are very limited, whereas oftentimes the major officers and partners of a company would take out all the capital. We’ve left a large amount of capital in the firm and it has been growing over the past decade. We will celebrate 10 years in business this October.
Opportunist: How can an investor set up an account with you?
Eric Flesche: Call us at (818) 907-1505, or toll free at (866) 803-7900, and press option No. 2 for ‘customer service’ and tell us they would like to open an account. They can talk with a representative who will send them all the necessary forms and requirements to open the account at that time. Each account has a different requirement. It’s similar to opening a bank account in that each customer is required to provide an ID so we can ensure they are who they say they are. We don’t do a background check per se, and we certainly aren’t paying a third party to do that for us, but we do verify their information and review it for any public regulatory issues that the individual or the entity opening the account may have. If someone has previously been barred by the SEC from trading penny stocks, for example, we aren’t going to permit them to open an account.
People can also go to our website, glendalesecurities.com, which is very basic and informational. If they send us an email we can send them the documentation necessary to open an account. Our business is unsolicited, however, and we don’t give investment advice.
Opportunist: How do you choose which client companies to work with?
Eric Flesche: We don’t discriminate, and we don’t actually come up with a threshold for their market cap, their equity or their assets. As long as the client’s business is legal and they meet all of our due diligence requirements, there is a good chance we will file their Form 211 application form with FINRA.. However, at times we are at the maximum number of markets we can make and may not be accepting new clients.
Opportunist: What do you enjoy most about your work?
Eric Flesche: Investors are initially overwhelmed by our compliance process, but after they understand the procedures, they are happy to be able to deposit and sell their securities. It’s satisfying to be able to help investors deposit these legal securities that they were unable to deposit and sell anywhere else.
Opportunist: Where do you see Glendale in five years?
Eric Flesche: We would like to be able to self-clear in order to provide the most cost effective services to our clients.
Leslie Stone is an award-winning writer, editor and journalist with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides between Florida and Michigan. Follow Leslie on Twitter: @lescstone.
Glendale Securities, Inc.