Regulation, volumes will drive European use of commission management tools

Buy-side firms have had to wait two years for a European version of Markit's commission management platform, but conditions in the region mean they may take to it quicker than their US equivalents.

By None

Buy-side firms have had to wait two years for a European version of Markit's commission management platform, but conditions in the region mean they may take to it quicker than their US equivalents.

The tool, first released in 2011 in the US, helps buy-side firms manage and allocate commission credits across their sell-side counterparts. It has been developed and implemented by the financial and data solutions provider in consultation with sell-side partners to help asset managers view and collate information regarding commission sharing agreements (CSAs).

Use of CSAs is rising in both Europe and the US, but a stronger regulatory focus on separating payments for corporate access, research and execution is expected to lead to a greater take up of commission management solutions.

John LaVecchia, product manager for Markit Commission Manager, believes the software-as-a-service tool, which is free for buy-side clients, will provide users with a greater ability to manage CSA balances and payments to high-value providers, so CSA money flows to providers.

"The regulatory environment in Europe regarding use of dealing commissions and in particular the recent Financial Services Authority (FSA) push to clearly separate corporate access from research has supported more buy-side scrutiny of commission management," LaVecchia said.

In November, the FSA (which in April morphed into the Financial Conduct Authority) published a report citing the findings of a 'thematic review' in which only two of 15 asset managers met current UK rules on commission payments, particularly regarding corporate access payments. UK buy-side firms were asked to attest they had revised their practices and ensured their activities were in line with FSA rules by 28 February.

LaVecchia added low volumes and the need to adapt systems to new regulations across the region would also lead many asset managers to adopt improved CSA management.

"Lower European equity trading volumes in recent years have led buy-side clients to more closely monitor their most valuable sell-side relationships. This service seeks to provide a mechanism to facilitate this," he said.

Markit will add functionality to the software so it interlinks with other of the firm's products, including their research and corporate access platforms.

The sell-side participants behind the tool include Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan and Morgan Stanley.

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