New York — A recent article in Advanced Trading makes the argument that there will be increasing demand from buy-side clients for commission sharing agreements (CSAs or CCAs) in fixed income, as well as other asset classes such as options and futures. As more asset managers now look holistically across different strategies, regions, and asset classes, it does seem plausible to argue that commission arrangements in all kinds of trades should offer the same flexibility as CSAs currently offer in equity markets.
The details of these non-equity CSAs are somewhat unclear at this point, as it is difficult to cross-compare commission arrangements in fixed income and other asset classes with equities – one suspects that the implementation of said CSAs may well require the assistance of specialized CSA management system providers like Cogent. However, the article provides a very compelling argument for the adoption of CSA across all asset classes and regions, supplied by Michael Groves, head of trading at New Star Asset Management:
We have an obligation to ensure that we provide best execution for our clients,” Groves relates. “At times, when it’s not possible to trade through brokers who have provided research due to our best-ex requirements, using CSAs allows the fund manager to reward brokers who generate useful and successful ideas and research,” he adds.
“CSAs also help us reduce the number of brokers on our dealing list, which has been pretty extensive,” Groves continues. “We are able to list our brokers who provide execution and research and those who just provide research. … You can still deal where you need to deal and find the best price and liquidity, but under CSAs you can pay firms that are providing ‘permissible’ services, as defined under U.K. regulation, to the fund managers.”
Article link: Client Commission Agreements Go Global and Multi-Asset-Class, Advanced Trading, July 16, 2008