US institutions’ use of commission sharing arrangements (CSAs) with their equity brokers increased sharply in 2007-2008, according to new research by consulting firm Greenwich Associates. The firm’s 2008 US equity research study found that 45% of institutions employ CSAs, up from 25% last year.
Overall, US institutions are directing an estimated 16% of total US equity trading commissions via CSAs, and expect this to increase to 20% over the next 12 months. Among active users of CSAs, the share of commissions allocated through the arrangements grew to 23% this year and is expected to rise to 27% in 2009, the study found.
Market-wide, Greenwich believes much of the growth in CSAs can be attributed to the transfer of traditional soft-dollar arrangements – which were used by more than 60% of US institutions as recently as last year – to the more formal CSAs.
However, the number of institutions making the change could tail off next year. “The last year seems to have marked a peak period for institutions shifting from soft-dollars to CSAs as a means of compensating third-party providers for research and service,” said Greenwich Associates consultant John Feng in a statement. “Looking out over the next 12 months, only another 5% of US institutions – mainly mutual funds and investment managers – say they plan to establish their first CSAs.”