US institutional investors continue to reduce their broker lists to focus on executing through a small number of bulge bracket firms instead of paying for research through execution commissions, according to Bill White, head of equities electronic trading for Barclays.
White said US buy-side clients were increasingly looking to implement commission sharing agreements (CSAs) and move away from ‘soft dollars’ – a term given to payments for research through execution commissions.
“Due to the compression of wallets and the rise of CSA agreements, we have seen a trend of broker consolidation from clients,” White told theTRADEnews.com.
“Clients have leaned towards liquidity profiles and best executions metrics when choosing whom to partner with,” he said.
A push from UK regulator the Financial Conduct Authority (FCA) has required asset managers to clearly separate research and execution payment, citing potential conflicts of interest on the part of brokers.
In the US, however, the issue has gained no traction with regulators and buy-side firms have moved away from soft dollar payments to reduce costs and improve execution quality.
White said some buy-side clients had up to 100 brokers that provided valuable research that could now be paid for through CSAs instead of execution commissions, that may lead to lower execution quality.