Commission Aggregation Evolves Post-MiFID II


The following is a guest article from Amrish Ganatra, Managing Director of Commcise Software Limited, a London-based provider of commission management software including commission aggregation services. 

With little innovation over the last 20 years having occurred with commission aggregation, which facilitates the use of multiple commission pools to purchase investment research, we believe it is in serious need of a reboot. Enter, stage right, Commission Aggregation 2.0.

To understand this story, though, we first need to rewind to the opening scene…

How did Commission Aggregation Arise?

Commission aggregation is the most common method used to manage research credits that are generated alongside securities trades by Commission Sharing Agreements (CSAs) which are used around the globe to unbundle execution and research commissions. In the US, less than 40% of trading volume is unbundled using CSAs, with the bulk still being still traded at a bundled (“full-service”) rate.

MiFID II has created a new transparency standard that has resulted in an increase in the use of CSAs, especially in the US. As buy-side firms increase their number of CSA partners and are also required to meet the latest regulatory obligations of MiFID II, there is a growing need for aggregation services.

According to industry surveys, aggregation has risen 50% in recent years as a response to the administrative responsibility on asset managers of managing programs individually.

There are two main commission aggregation service models available in the market:

  • Custodial aggregation – this is where CSA balances are swept to, and held by, a single “Custodial” aggregator;
  • Virtual aggregation – this is where CSA balances are held with each CSA broker and a software based technology solution virtually aggregates these balances for the asset manager.

Service Model 1: Custodial Aggregation

Custodial aggregation was the first model on the scene. This model ensures CSA dollars are physically moved from multiple CSA brokers into a single account that is held with the aggregating party.  This is typically a broker and most often the cash is held on the broker’s own balance sheet.

Custodial aggregators typically impose a per-share “toll-charge” on CSA brokers, rather than charging the asset manager. This charge can cost CSA brokers millions of dollars annually and ultimately results in decreased purchasing power for the asset manager as brokers reduce services accordingly. Custodial aggregators typically deliver their services using a customer support or relationship manager-led approach, which can be very costly if, for example, these teams sit in Manhattan.

Below is a list of the pros and cons of the custodial aggregation model, from the perspective of the asset managers and brokers receiving this service:

Service Model 2: Virtual Aggregation

Virtual aggregation joins our play in scene two. It offers a software-based approach to aggregation that provides asset managers with diversification of counterparty risk as CSA balances continue to sit with each CSA broker separately. Virtual aggregators are typically not brokers and therefore charge a fixed license fee to the CSA broker, irrespective of the number of shares executed. A flat fee charge means there is limited impact to an asset manager’s purchasing power with their CSA brokers.

Virtual aggregators, such as Commcise, have focused on providing solutions that are fully- automated, thus requiring less involvement of customer support teams and brokers, resulting in lower end-to-end costs to manage the process. We fundamentally disagree with the principle that it costs more to reconcile a trade of 100,000 shares of Verizon than to reconcile 10,000 shares of Verizon.  All other things being equal, the effort involved is the same for both trades. Using technology, the cost of reconciling trades is in no way impacted by the volume of the trade. We therefore think it’s time to say goodbye to using volume (i.e. number of shares traded) as the basis of a commercial charging model for a service that has become commoditized with the use of technology – this is a key driver for Aggregation 2.0.

In a virtual aggregation model, asset managers and brokers access a single client portal where trades are instantly reconciled; both parties track a single common balance; both parties manage payments transparently; both parties share a single common audit trail. Asset managers can benefit further from seeing full commission wallet reports.  These benefits include a view across the research components of both CSA and full-service rates trades that are all unbundled, client / fund-level reporting and granular research accounting, to name just a few (dependant on the solution provider).

Below is a list of the pros and cons of the virtual aggregation model, from the perspective of the asset managers and brokers:

The Denouement: What is Commission Aggregation 2.0?

As part of asset managers’ search for best-in-breed solutions, we see the aforementioned models converging, combining aspects of each, to create Commission Aggregation 2.0. Here are some of the key attributes of an Aggregation 2.0 service:

  • The asset managers can choose exactly where they want their balances to be held:
    • with CSA brokers;
    • with a custodial aggregator;
    • with an RPA Administrator;
    • with themselves in the case of P&L funds (and often with an RPA) or;
    • any combination of the above.
  • Outsourced operations teams manage any reconciliation exceptions for the asset manager;
  • Depending on where balances are held, asset managers can additionally choose:
    • who performs research provider due diligence – brokers or an outsourced operations team;
    • Who makes payments – brokers or an outsourced operations team;
  • RPA accounts in Europe are held in the name of the asset manager and therefore offer high protection (this isn’t currently possible in the US due to conflicts with the 40 Act);
  • As with the virtual aggregation model, CSA brokers are charged a fixed-price fee which is typically lower than fees charged under the custodial model, and are less penalized for improving trading relationships;
  • As with the virtual aggregation model, CSA brokers are not dis-intermediated and have direct access to the asset manager;
  • As with the virtual aggregation model, automated, timely trade reconciliations are performed by the technology;
  • As with the virtual aggregation model, a single end-to-end audit trail is always visible to the asset manager and their brokers;


The commission aggregation market is evolving.  Competitive and regulatory pressures are driving these changes.  Asset managers are demanding more from their commission aggregation providers because, in turn, regulators and asset owners are demanding more transparency from the asset managers. Commission Aggregation 2.0 has been a long time in the making, but it is now firmly here.  Old school aggregation exit, stage left.



About Author

Amrish Ganatra is a co-founder and Managing Director at Commcise Software Ltd and is considered to be one of Europe's leading industry voices commenting on the operational and technological aspects of implementing Research Payment Accounts both within the buy-side and sell-side. Commcise provides innovative fully integrated cloud-based Commission Management solutions that incorporate automated reconciliation, invoice management, commission budgeting, service history or consumption tracking, valuation engine, research evaluation (“voting”), commission management, share of wallet reporting and fund-level accounting functionality. Commcise is used by over 250+ asset managers and brokers globally. Prior to co-founding Commcise, Amrish and his fellow co-founders setup an investment technology consultancy firm in 2006 to help asset managers in implementing complex technology solutions.

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