Independent research firms are paid a number of ways – some operate as traditional brokers charging commission on order flows, whilst others are set up without dealing capacity and are paid through:
- Commission Sharing Arrangements (CSA)
- Client Commission Arrangements in the US (CCA)
- Hard dollar invoices
EuroIRP and Investorside has published a paper on EuroIRP Guide to CSAs & CCAs.
Our recommendations are as follows:
- The industry develops best practise standards, and the FSA endorses this process. These should include:
- Payment for research must be made "promptly", as mandated by the SEC. Neither investment banks nor money managers should be able to sit on commission pots
- Equal treatment of "proprietary" and third party research by the executing broker – no first take for its internal research
- No deductions from the research component for execution
- Transparency on agreements to avoid onerous terms, especially on pricing, being imposed on IRPs
- Money managers work to reduce unnecessary payment delays due to their evaluation and reconciliation process, recognising the damage this causes independent research firms.
- Money managers maintain at least one CSA relationship with a pure execution provider, which serves as a check on global broker execution pricing.
- Money managers increase the diversity in their CSA lists, encouraging competition and ensuring they generate appropriate commissions across all the markets and sectors in which they need to buy research.