New York – According to an article in a recent Cogent Consulting LLC client newsletter, a broker consortium for a consolidated commission platform is only weeks from a public announcement. Cogent says it is under consideration as the platform provider for a consolidated Client Commission Arrangement/Commission Sharing Arrangement offering from a consortium of brokers, according to a newsletter circulated by Cogent on February 27th. Reportedly, the primary focus of the consortium is creating an integrated administrative front-end so that CSA clients can easily manage commission balances with multiple brokers.
As we reported in the Integrity ResearchFocus℠ on Commission Platforms: CSAs and CCAs published January 2009, there is solid buy-side support for a broker consortium to provide consolidated CSA balances. Nearly 40% of respondents to our survey of CSA users, conducted in November and December 2008, supported the concept of a broker consortium. The idea for a consolidated CSA offering was first developed by individual investment banks. Goldman Sachs launched the concept in Europe in 2008, and was quickly followed by an offering from UBS. The initial challenge for individual investment banks was getting other bulge firms to fully participate. Then the Lehman bankruptcy added a new concern–counterparty risk.
The movement toward a consortium began in earnest last fall, reportedly driven by Merrill/BoA and Barclays. The initial concept encompassed ideas to address counterparty risk as well as administrative consolidation, but since then the concept has evolved. Other means of addressing counterparty risk, such as custodial arrangements, are being pursued. We believe that the consortium is now focused on providing a consolidated administrative platform.
Cogent reports that it is in discussions with the consortium, but that other firms are in consideration. We would expect TheMarkets.com, itself a broker consortium with its own broker vote platform, would be a contender for consideration. Cogent indicates the concept is for a web-based portal so that no software would need to be installed with clients. If key client data (balances, payments, counterparties etc) is to be held centrally, this may create concerns among clients. The consortium will need to focus carefully on the management of this sensitive client data. Currently this data is distributed across multiple broker platforms, which reduces the risk. Individual brokers will also need to consider the relative strengths and functionality of their own platforms, which they may be giving up under a model where balances are managed through an aggregator.
Cogent believes that the consortium is 3 to 4 weeks from a formal announcement. The firm is attempting to create momentum for its own platform by providing new clients a guarantee that, if Cogent is not chosen to participate in the CSA consortium, it will allow customers to cancel their Cogent license and Cogent will transfer their data to the software chosen by the consortium.
The full text of Cogent’s newsletter article is below:
“Cogent has been in discussions with a large number of bulge bracket brokers about the creation of a broker-neutral, independently run system to help brokers and their clients manage their CSAs. The technology would be based on Cogent’s CSA Trak BD system (aka “the Cloud”) and would be available on a web-based portal, meaning no software would have to be installed at any buy-side firms to access it.
The consortium is advancing well and it is hoped that a formal announcement of the consortium’s plans will be released in the next 3-4 weeks. Cogent’s “Assurance” plan offers new broker clients that wish to sign up with Cogent the ability to do so, knowing that should the consortium not choose Cogent as their technology platform that they can cancel their license without obligation or penalty and/or have Cogent export their data to the system chosen by the consortium.”