Take-up of Markit’s commission sharing agreement (CSA) tool has increased more than three-fold in the past year as buy-side firms react to regulatory scrutiny of commission spend.
The tool, Commission Manager, is designed to enable institutions to manage CSAs across a range of brokers, replacing the manual spreadsheet processes that have been traditionally used.
Financial data provider Markit said the number of buy-side users has grown from a little over 30 a year ago to 115 clients globally today, with 32 broker dealers supporting the product.
Tom Conigliaro, head of trading services at Markit, said: “The growth of Commission Manager shows that CSAs have become quite a mature feature of the market because firms are now using it to manage multiple CSA relationships which require more sophisticated tools to oversee.”
Though CSAs have existed for over a decade, their use has accelerated since the UK regulator, the Financial Conduct Authority (FCA), launched a consultation on making research and execution costs more transparent and making asset managers more accountable for their research spend.
“This change is partly being driven by regulation but there has also been a change of mindset among the sell- and buy-side,” Conigliaro added. “Commission Manager was developed five years ago because the partners we developed it with could see the industry’s direction of travel.”
Markit also offers two complimentary tools for the buy-side which are also seeing increased interest. One, called Vote, enables portfolio managers within a firm to score research based on its value in informing investment decisions. This can then be used to help investors to allocate their commission and give brokers a view of which research their clients find most useful.
Markit Calendar is a way for sell-side firms to upload a variety of client interaction events, such as analyst meetings or corporate access, which can then be incorporated into Vote and used to allocate commissions and keep detailed records.
“Our next goal is to increase workflow integration between Commission Manager, Vote and Calendar to make this a seamless process for institutions to manage all their commission, research and corporate access,” Conigliaro said.
The FCA’s rules on dealing commissions will require institutional investors to ensure they receive value for money from research providers. It will also ban paying for corporate access through commissions. The rules are due to be implemented on 1 June in the UK and are currently being considered for inclusion in pan-European regulation MiFID II.