Integrity Research: The Payment Paradox

New York – The complexity of payment options is one reason why equity research is such a tough business. Research providers are faced with a variety of payment vehicles: commissions paid through Commission Sharing Arrangements or Client Commission Agreements (CSAs/CCAs), commission paid through traditional soft dollars, commissions paid direct (if you have a trading desk), and plain old cash, aka, hard dollars.
We are told by CSA/CCA brokers that volumes have been booming, as asset managers who have the agreements in place are putting more transactions through. The impetus has been to take advantage of ‘cost plus’ commission fees, reducing overall commission expense. Asset managers with CSAs/CCAs in place negotiate an execution fee based on electronic trading and then add an amount that can be set aside for research payments as part of the commission pool generated by the CSA/CCA. The payments are then used to pay for other brokers’ research, and for alternative research. read more