Vive Les CSAs (Et La Recherche Indie)


New York–The French securities regulator, the Autorité des marchés financiers (AMF), recently implemented commission transparency regulation similar to that implemented in the UK in 2006.  The new regulation is intended to stimulate the use of independent investment research and to encourage the adoption of commission sharing arrangements (CSAs) in France.

The new measures were initially proposed in 2005 by an AMF-led task force on independent investment research.  The intent of the new rules are to stimulate the use of independent research during public offerings, stipulate rules for the conduct of business by independent analysts, and to introduce CSAs to France.

Encore Indie Research

The AMF is seeking to promote more use of independent research during IPOs and other securities issuance.  The AMF General Regulation has adopted the principle that independent analysts should have equal access within the same timeframes to the financial information in connection with a securities offering.
The AMF calls on companies seeking a public listing or preparing a share capital increase to solicit research from outside the underwriting syndicate in cases where the offering is of a significant size and is intended for retail investors.  The AMF also recommends that companies and the underwriting syndicate make such research available to the public in a readily accessible and
convenient format.

On the surface the new AMF measures would seem to be a boon for independent research.  However, broad retail distribution of research can have the effect of diluting the appeal to institutional investors, making institutionally-oriented research houses reluctant to participate.  There is also a business model issue since research firms paid by subscriptions or broker votes will be concerned about cannibalizing their revenues.  The new rules are best suited to research firms which operate under a ‘paid for’ business model, of which there are a fair number in the UK and on the continent.  Like the Global Research Settlement in the US, which ended up benefiting a small subset of independent research firms, the AMF measures aren’t likely to transform the world of independent research.  Nevertheless, like in the US, the benign regulatory intent is still a valuable force for stimulating general interest in independent research, and can prove helpful to independent research providers of all varieties.

Bonjour CSAs

The most important portion of the new regulation is the implementation of commission transparency and guidelines for the adoption of CSAs.  Similar to the regime implemented by the UK’s FSA at the beginning of 2006, the regulation mandates that investors provide transparency to clients on the portion of commissions used for execution and the portion used for research.  [Hello, SEC…you are lagging even further behind your regulatory peers…]  There will be a transition period for the remainder of this year, with January 2008 as a deadline for implementation.

The new AMF disclosure regime is very similar to that implemented by the FSA, except that the AMF has provided more specific and detailed guidance on the terms of the CSAs and the disclosure required.  This, when combined with the impact of MiFID, is having a huge impact on investors based in France.  Contacts within investment banks are saying that 95% of their French clients will be implementing CSAs by year end.

Commission transparency and CSAs will have a more beneficial impact on alternative research than equal access to IPO’s, as investors make the transition from research being ‘free’ to having a defined budget for research.  The moves by the AMF underscore the woeful state of the SEC, which is nearly two years behind the FSA and now lapped by the AMF.  Hey Chris, get on it!

The following article was recently published at

AMF Amends Its General Regulation On Independent Investment Research


The General Regulation of the French securities regulator, the Autorité des marchés financiers (AMF), was amended by an executive order of 4 May 2007, published in the Official Journal of the French Republic on 16 May 2007.

The amendments, which follow on from the public consultation held between 28 July and 31 October 20061 ( ), concern independent investment research and commission sharing arrangements.

The new measures stem from the recommendations set out in the report2 published by the working group on independent investment research chaired by AMF Board-member Jean de Demandolx Dedons. They seek to provide independent investment analysts with conduct of business rules and to introduce commission sharing arrangements into France.

On the first point, the new measures lay down the conditions that investment analysts not employed by an investment services provider must comply with in order to be considered as having independent judgment. They also set forth the compliance duties of these analysts and the obligations applicable to the professional associations representing them. In addition, the AMF today published a recommendation on the production of independent research during large-scale securities offerings intended for retail investors:

On the second point, the new measures usher in a system of commission sharing arrangements. Where brokerage fees are charged to portfolios managed by an investment management company (through collective investment schemes or under mandates) a distinction must now be made between the portion of those commissions paid for order execution services and the portion paid for investment support services particularly investment research.

Under such a system, an investment manager can if it wishes ask a third party to supply it with a research service. In this case, a commission sharing agreement (CSA) must be entered into. The CSA must provide that the firm responsible for order execution services shall pay the portion of the brokerage fees relating to investment research services to the third party selected by the investment manager.

The AMF General Regulation stipulates how these arrangements are to be implemented, and in particular the conditions to be complied with by CSAs and the transparency requirements applicable to investment management companies in relation to their clients (i.e., holders of units or shares in collective investment schemes and mandate principals). Furthermore, an AMF instruction gives a non-exhaustive list of “non-permitted” services, which may not be billed to collective investment schemes or portfolios managed under a mandate covered by a CSA.:

Commission sharing arrangements will replace the present system of soft commissions after a transition period terminating on 1 January 2008. An assessment of the way in which these arrangements have been implemented in the French market will be made in first-half 2009.

1The summary of consultation responses was published today

2The report entitled “A fresh start for independent investment research in the French market”, was released on 13 July 2005 and was put out for public consultation until 30 September 2005. A summary of the responses to the consultation was published on 20 December 2005.


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