New Jersey-based software vendor, Castine Consulting, recently announced the release of two new software systems which will enable buy-side investors to manage the unbundling of research from commissions as foreseen by MiFID II by administering Research Payment Accounts for themselves.
The Launch of RPAcentre
Last week, Castine Consulting (formerly commission management and broker vote management vendor Cogent Consulting) announced the initial release of its buy-side RPAcentral.com and RPAcentre.com websites for the management of Research Payment Accounts (RPAs).
These sites were constructed around proposed changes to the way investment research is likely to be paid for in Europe. While the final text of the technical advice under MiFID II is still evolving, it is quite clear that institutional investors who choose to use RPAs to pay for research will be required to value research on a regular basis, establish research budgets, communicate these budgets to clients, collect and account for research fees paid by clients, and manage research payments to providers.
Castine’s RPA management services have been designed to flexibly handle all these various functions. Like all of Castine’s products, RPAcentral and RPAcentre (for UK-based firms) are completely cloud-based, run on all desktop and mobile platforms, and were built using the latest advances in website development and reporting tools.
A Few Features of the Platform
While Castine understands that clients will choose different methods to value the research they use, their initial approach is to leverage buy-side firms’ existing broker / research votes. Clients will be able to import their research vote data from various systems using their API. The firm is also considering working with third-party vendors to develop more sophisticated research valuation models.
Another interesting feature of the system is the ability for buy-side investors to communicate research budgets to asset owners. Asset owners will not only be able to see their investment managers’ research budgets on an extremely granular basis, but they will also be able to compare the research budgets of the various asset managers they work with who also use the Castine system.
Unique Position for Castine
Castine has a unique vantage point in launching these new RPA management systems as the firm’s principals have significant global expertise in developing and supporting Soft-dollar / CSA management, trade reporting, and broker voting systems previously as Cogent Consulting. Castine’s initial broker review and CSA modules were sold to BNY Convergex in 2009 and are now owned and operated by Eze Software.
Since Castine’s team completed the handoff of the products they sold to ConvergEx, Castine Consulting has been developing a number of unique web-based management systems for the financial services sector, including broker compensation systems, client profitability systems, and compliance due diligence systems for the research firms, trading counterparties, IT vendors employed by buy-side firms. Castine Consulting and Integrity Research Associates have partnered to develop the Compliance Telescope due diligence platform.
Buy-Side Advisory Team
Castine is in limited release with its RPA management systems and is currently collaborating with a select group of global asset managers to ensure the functionality requirements match up with the intent and the spirit of the proposed changes in the final text of the delegated acts under MiFID II.
If you would like more information on Castine’s new RPA management system, the underlying regulatory documents, or would like to be a member of Castine’s “RPA Advisory Team,” please contact Robin Hodgkins at rh@CastineLLC.com or by calling 908-256-9683.
Our Take
As we have mentioned before, one of the potential winners of unbundling could be technology service providers who will be able to help buy-side investors or research firms manage the transition to an unbundled world. In our minds’ RPA management system providers could be in great demand by buy-side investors who decide to administer their RPAs themselves.
In fact, in a proprietary survey Integrity Research conducted a few months ago, 32% of buy-side investors plan to use “Research Payment Accounts” funded by a new charge to investors to pay for sell-side and independent research (an additional 33% are not really sure what they intend to do). Of this total, 39% plan to manage RPAs themselves, while an additional 44% of those surveyed are not sure how they will manage their RPAs.
Consequently, once European Parliament decides on the final language regarding MiFID II’s new research payment rules, we expect a large a vibrant marketplace for RPAs will develop. However, we suspect the market will become quite crowded with numerous firms provided RPA management systems, research valuation models, and other related technology solutions. The good news for Castine is they have considerable expertise in this area and they are one of the first fully developed offerings to hit the marketplace.