A group of global broker-dealers has signed a non-binding letter of intent to buy Cogent Consulting, a US-based provider of commission management systems.
“The objective of this transaction is to have a widely-used industry platform that will make it easier and cost-effective for broker-dealers to offer CSAs and for money managers to take advantage of them,” said Robin Hodgkins, President, CEO and founder of Cogent. The firm has developed a tool, CSA Trak, to manage commission-sharing arrangements (CSAs) through a single online portal that reports balances and activities both by broker-dealer and on a virtually aggregated basis. Cogent also provides trade reconciliation services and a broker voting platform.
CSAs between asset managers and broker-dealers have been under scrutiny since the collapse of US investment bank Lehman Brothers last September. During the ensuing insolvency process, commission pots held by the US investment bank on behalf of buy-side clients were frozen rather than being paid to research-only houses. A number of large sell-side firms act as CSA brokers to institutional investors, helping to separate and direct payments for research and execution services. Such firms have come under pressure to ringfence their commission-sharing and management services to prevent a repeat of the difficulties experienced by Lehman’s clients and their research providers.
CSA Trak already operates on a global basis and offers multi-client, multi-broker, multi-vendor and multi-currency functionality.
According to Cogent, none of the broker-dealers will individually acquire a controlling interest in the firm, with the current owners maintaining a minority stake. A statement on the company’s website said definitive documents related to the deal were “scheduled to be concluded this summer”.
“Cogent will continue to operate as a stand-alone, third-party service provider and our products will remain available to sell-side and buy-side firms globally. All trade, commission and payment information will continue to be confidential,” said Hodgkins, who, along with the rest of the existing management team, will stay on in his current position.
Hodgkins added that the development of a common communications protocol for trade reconciliation and processing would lead to “a new era” in which asset managers could allocate CSA credits more easily.
Cogent’s European operations are managed by a partner firm, MPI-Europe.