US-based commission management systems provider Cogent Consulting has said that its planned broker-backed commission sharing agreement (CSA) platform will help buy-side firms streamline their commission payments, while enabling them to continue spreading risk.
Last week, Cogent signed a non-binding letter of intent under which a consortium of global broker-dealers would buy a majority stake in the firm and develop its CSA Trak product into an industry-wide CSA management platform. CSA Trak allows the buy-side clients of the participating brokers to manage multiple commissions payments on one platform.
“Buy-side firms are caught in a bit of a Catch-22 scenario, where they want to aggregate CSA payments in one place to simplify payments but are wary of the dangers of centralising risk after the problems suffered by some banks last year,” Robin Hodgkins, president, CEO and founder of Cogent, told theTRADEnews.com. “Our solution provides them with a multi-client, multi-broker portal, where they can treat balances as one lump sum without having to deal with each broker individually or move money to one aggregating broker, which might heighten counterparty risk.”
Hodgkins added that the new platform will help buy-side firms manage the complexities of reconciliations, multiple logins and multiple commission splitting rules more easily while also allowing them to report CSA balances in a standardised way.
The list of brokers involved will be made public after the initial documents are signed in June, but Hodgkins confirmed that it would include at least seven of the largest global broker-dealers.
Hodgkins said the projected growth of the CSA business in the next few years made the prospect of buying Cogent attractive to the group of brokers.
“We were planning to simply license our sell-side product to the consortium brokers, but early last year the firms involved approached us and said it would be more appealing to have a stake in the company and participate in the growth of the CSA area,” he said. “It was a mutually beneficial arrangement as we also wanted some of the largest firms involved in CSAs to endorse the platform and bring more business to it.”