Glendale Securities Firm Seeks to Increase Its Presence : Trading: Otra wants to supplement its clearinghouse function by also becoming a retail brokerage.

Otra Securities Group Inc. in Glendale runs a tidy little clearinghouse for small stock brokerages. People buying and selling stock through those brokerages have their transactions “cleared” by Otra, which transfers the cash to the sellers and the stock to the buyers.

It’s not sexy but it can be profitable. Otra, founded in 1986, earned $1.6 million on revenue of $12.6 million last year--a respectable 13 cents of profit per $1 of business. And Otra’s performance is starting to appeal to more people. Its own stock, which fetched a mere 50 cents a share two years ago, is now approaching $6 on the over-the-counter market.

But Otra isn’t always in charge of its own fate.

“One of the things that’s always bothered me about being a wholesale clearing firm is you don’t have any control over your revenue base,” said William R. Stratton, Otra’s co-founder, chairman and largest stockholder. “When we come to work, we don’t know if we’re going to clear 3,000 trades that day or 1,000. We have to be prepared to do 3,000, but we also have to be profitable at 1,000.”

So Stratton, 43, believes that Otra must diversify to accelerate its growth. To wit, he’s building his own staff of stockbrokers so that Otra can itself become a retail brokerage, perhaps later this year.

In effect, the retail brokerage would enable Otra to create its own demand for its traditional clearing services. No longer would Otra’s business be totally dependent on how many trades its outside brokerage customers send its way.

Otra actually clears an average of 1,700 trades daily. Of course, the huge brokerage firms such as Merrill Lynch & Co., Prudential Securities Inc. and PaineWebber Inc. clear millions of shares traded each day. They also have long employed Stratton’s proposal of combining their far-flung brokerage system with their own clearing, or “back office,” operations.

Below these giants are dozens of mid-size regional brokerage firms with hundreds of brokers that nonetheless use outside clearinghouses to save cash. But even they are potential customers that so far have been out of Otra’s league.

Otra serves small brokerages that aren’t household names, firms such as Tamaron Investments in Denver and Chelsea St. Securities in Dallas. (Otra has no customers in Southern California, however.) Some of these firms specialize in thinly traded “penny stocks” that normally trade for less than $5 a share, although Tamaron President David Lutz said his firm is one that avoids penny stocks.

Today Otra clears trades for 26 broker-dealers, which have about 80,000 customers who actively trade stocks, Stratton said. That’s down sharply from the 42 broker-dealers it had at year-end 1989, owing in part to the general shakeout in the securities business since the 1987 crash.

In particular, many penny-stock brokers have gone bust since the October, 1987, stock market crash, said Joe Ricketts, chairman of Ameritrade Inc., an Omaha clearinghouse. They failed not only because of the crash but also because of regulatory efforts since then to clamp down on the abuses that have been associated with certain penny-stock brokers, such as fraud and inflated commissions, Ricketts said.

Legitimate and successful small brokers that have remained “seem to have gravitated toward Otra,” in part because many clearinghouses--including Ameritrade--now avoid penny-stock and other small brokers, Ricketts said.

Stratton conceded that early on, Otra “made bad decisions on doing business with people we shouldn’t have done business with,” particularly in terms of granting those firms credit that was secured by stocks that the brokers left with Otra as collateral. Without naming names, Stratton said some of those stocks eventually became worthless. Now, he said, Otra deals with its brokers on a cash-only basis, so its credit problems no longer exist.

Regardless, why would any successful stockbroker want to be part of Stratton’s plan to build a new brokerage?

Stratton claims that what he can’t offer in prestige he’ll offer in higher earnings. That is, he said he’ll let his brokers keep 50% or 60% of the commission on each trade they generate, contrasted with the 28% to 33% many brokers now earn at the major securities firms.