Instinet Offers Variable Payments To Non Broker Research Providers

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New York, NY – According to a press release put out on Monday, April 23rd, agency brokerage firm, Instinet, has rolled out “variable payments” to non-broker dear research providers who participate in the firm’s BrokerShare institutional commission sharing program.

Historically, U.S. brokers were not allowed to “share commissions” between registered broker-dealers and non-broker dealers.  As a result, non-broker research providers were typically paid a flat fee (in either hard dollars or soft dollars) based on the provision of an invoice.

However, since the SEC’s interpretive guidance on soft dollars in July, 2006, the nation’s top securities regulator approved the use of Commission Sharing Arrangements to enable asset managers to use one broker to execute transactions and collect a pool of equity commissions that could be used to pay for research provided by third-party brokers.

A related structure called Client Commission Agreements were also created in the wake of the July interpretive guidance.  A CCA is identical to a CSA, except that a money manager can direct their broker to use their pool of commissions to pay for research provided by non-brokers, as long as the asset manager is in charge of determining who to pay and what amount they should be paid. Consequently, in this new environment, a money manager could decide to pay a non-broker research provider variable amounts based on what he/she determined was the value of that research.

It is in this regard that Instinet’s recent announcement makes sense, as its BrokerShare program has the attributes of both a CSA and CCA, depending on whether the research providers are brokers or non-brokers.  The addition of non-broker research providers to the Instinet BrokerShare program follows Goldman Sachs’ inclusion of non-brokers to its Research XPRESS program following an SEC No-Action letter on this topic a few months ago.

It is interesting to note that Instinet has been one of the true pioneers in the development and implementation of CSAs in the United States, as its BrokerShare program was, in many ways, the precursor of such an arrangement.

We have included the entire text of Instinet’s Press Release below.

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Instinet Opens BrokerShare to Non-Broker-Dealers

NEW YORK – April 23, 2007 – Instinet, a global agency broker and wholly-owned subsidiary of Nomura Holdings, Inc., today announced it has expanded its pioneering BrokerShare® commission sharing arrangement (CSA) program to include non-broker-dealers. As a result, Instinet will now provide institutional clients with Section 28(e) eligible services obtained from non-broker-dealers, such as independent research providers, through trading commissions on a variable basis rather than a static soft dollar invoice amount.

“As a pioneer of the CSA model, Instinet strives to continually innovate with our BrokerShare program,” said Michael Plunkett, President of North America at Instinet. “With the SEC’s clarification last summer and industry-wide acceptance of CSAs and CCAs, interest in BrokerShare has increased significantly. Today’s announcement is simply a response to our clients who have requested that we make BrokerShare even more inclusive.”

One of the industry’s first CSA programs when introduced in 2003, BrokerShare allows institutional clients to consolidate trading relationships and obtain diverse research without sacrificing execution quality. Since it is not a traditional step-out program, trading strategies are not disclosed nor is trading information released to participants. The program has grown steadily since its introduction, today including over 200 participants and $15 million in 2006 payouts.

With the program, clients accrue trading commission credits in a BrokerShare account by utilizing Instinet’s global trade execution services, and later direct Instinet to pay participants whose Section 28(e) eligible services they consume. Instinet handles all payments (which are variable based on the client’s discretion), administration and record-keeping through an online commission management system.

About Instinet

Instinet, through its subsidiaries, acts as a global agency broker, providing the trading expertise and advanced technology necessary to successfully interact with more than 50 securities markets worldwide. Acting solely as an agent for its customers, Instinet seeks to improve institutional investment performance and lower overall trading costs through its various front-end trading systems, securities crossing networks, algorithms, commission management programs and investment research products. The company, which is a wholly-owned subsidiary of Nomura Holdings, Inc., is headquartered in New York and maintains offices in North America, Europe and the Asia Pacific region. For more information, please visit www.instinet.com. Instinet conducts its U.S. institutional brokerage business primarily through Instinet, LLC, member NASD/SIPC.

©2007 Instinet, LLC. All rights reserved. INSTINET is a registered service mark in the United States and in other countries throughout the world. Instinet, LLC is a member of NASD/SIPC.

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