NEW YORK, May 10, 2011 – Properly allocating commissions to agency brokers that provide research, adding the most value to their US buy-side clients, has grown more complex since the advent of unbundling and commission-sharing agreements (CSAs). However,according to TABB Group in new research focusing on trends in CSAs, the buy side is now in a better position to solve the complexities of commission management based on recent advances in technology and services.
Within the next few years, TABB expects the buy side to move closer to managing their global commission budget through a single application, or a “golden copy” of commission balances and payables, separating trade decision from critical allocation of research, say Adam Sussman, partner, director of research and co-author with research analyst Cheyenne Morganof “Commission Sharing Agreements: Navigating the New Market Structure.” Examining trends in commission management, the research note coverstrends in unbundling, buy-side attitudes toward commission management, CSA aggregation, impact of CSAs on broker relationships and recent innovations around commission management tools.
Recent advancements in CSA services, Morgan points out, are helping the buy side solve three primary objectives of the payment mechanism: confidentiality, safety of assets and the ability to use CSAs across regions and asset classes. However, there are significant regulatory and taxation issues that should be resolvedbefore the buy side can truly begin implementing a unified commission pool. However, there are several developed countries that have not yet given CSAs the necessary tax treatment to make them an efficient payment mechanism. In addition, there are different opinions among buy side firms as to whether commissions generated in one country can be used to purchase research in another.
Another area of advancement deals with aggregation technology. This helps the buy side trade with as many counterparties as possible by building CSA balances with each of the brokers while simplifying management of those balances. “From the broker voting process to the payout of research, the use of spreadsheets and manual input is no longer satisfactory,” says Morgan. “Using broker voting software and commission management offerings to help manage multiple commission arrangements, the buy side can now more readily ensure that the consumption of broker ideas and researchis aligned with the exact requirements within the firm.”
“Whether you’re a large buy-side institution with 75 research providers looking to aggregate the commission payout process or a small asset manager with a handful of brokers focused on making the most of every commission dollar, today’s commission administration offerings should be able to efficiently streamline all the tasks and challenges associated with commission management,” Sussman says.
The 21-page report with 10 exhibits is now available for download by TABB Group Equity Research Alliance clients and pre-qualified media at https://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, visit http://www.tabbgroup.com or write to firstname.lastname@example.org.