Partnership helps limit CSA risk

Help for institutional brokerage and investment managers in Europe to implement and manage commission sharing agreements (CSA) faster and more easily is being offered by a strategic partnership between Cogent Consulting and MPI Europe.

Following the Lehman UK bankruptcy, more managers want to spread risk by using a greater number of CSA brokers, creating demand for the right technology platform to manage CSAs efficiently.

Under the partnership deal, MPI will implement Cogent's CSA Trak and CSA Trak BD solutions for buy and sell side companies in the UK and on Continental Europe.

CSA Trak turns the complexity of setting up arrangements with a large number of sell and buy side accounts into a web- based solution

CSAs represent the biggest single change this decade in the way investment managers pay for services. Approved by the UK Financial Services Authority, other European regulators and the US Securities and Exchange Commission, these arrangements have grown significantly particularly in the UK and France.

Through CSAs investment managers can use research commissions (defined as commissions above pure execution rates) to pay research providers for best research. Rather than trade directly with every research company, CSAs allow for a smaller list of counterparties, then used to pay third party research providers.

The Lehman UK bankruptcy underscored the dangers of investment managers building up large commission pools at a small number of brokerage companies. As a result leading institutions are starting to use a greater number of CSA brokers rather than the "aggregation" or single broker-driven model to manage all of their clients. A greater number and variety of brokerage companies are now interested in offering CSAs to institutional clients.