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
Best Practice Recommendations
Euro IRP and Investorside have published guidance on CSAs and CCAs. Our recommendations include:
- Payment for research must be made "promptly" – neither investment banks nor money managers should sit on commission pots
- Equal treatment of "proprietary" and third party research by the executing broker
- No deductions from the research component for execution
- Transparency on agreements to avoid onerous terms being imposed on IRPs
- Money managers should maintain at least one CSA relationship with a pure execution provider
- Money managers should increase diversity in their CSA lists, encouraging competition