Instinet has received regulatory approval to become a payment institution (PI), meaning it can offer clients solutions to unbundle their execution and research payments.
The agency broker confirmed it has been approved as a PI by the Financial Conduct Authority (FCA), meaning it can offer segregated cash management and payment service solutions to clients who wish to operate a hard dollar research payment account.
The industry is currently awaiting a decision from European regulators, due at the end of September 2015, on whether or not firms will be required to keep a separate pool of cash to pay for research costs as part of MiFID II, due in September. Initial proposals suggested institutional investors should charge clients directly for research costs to improve transparency and pay them into a research payment account, which would be used to purchase research.
However, Instinet said it wish to give its customers the choice to operate this model regardless of the European Securities and Markets Authority’s decision on the matter.
Adam Toms, CEO of Instinet Europe, said: “Optionality is the key, as we still firmly believe that Commission Sharing Agreements (CSA) can offer the necessary tools for Asset Managers to effectively manage their research payments. We have seen strong growth in the CSA platform at Instinet, notably in our CSA Aggregation services.
“Our hope is that the regulators and politicians find the common ground necessary to allow our Clients to choose the model that works best for them, whilst keeping investor’s best interests at the heart of their business.”
Instinet said its first clients using the segregated account are due to go live in August 2015 using its Plazma cash management and broker review platform.
The new account service will enable clients to track research budgets, instruct payments, generate reporting and utilise broker voting.
Toms said he has observed a clear trend towards increased transparency of research spending among the buy-side.
"Our commission sharing agreement (CSA) balances are up about 80% year-on-year and basic CSA balances are showing healthy growth as well. Clients are improving their practices and we wanted to offer an RPA-type structure for those who want to go one step further and become fully unbundled," he added.