Investors Challenge Proposed Regulation of CSAs

Survey finds 88% of European and 93% of North American financial professionals want the same or lower levels of regulation for commission sharing arrangements.

Two-thirds (67%) of buyside respondents would use less research if required to pay cash.

May 14, 2015, 09:53 ET from Convergex

NEW YORK, May 14, 2015 /PRNewswire/ -- Convergex, an agency-focused global brokerage and trading related services provider, and its Westminster Research Associates commission management business, have released the results of their CSA & Research Usage Survey, exploring how financial industry participants use research in their investment decisions, and gauging industry sentiment about proposed regulations regarding the acquisition and use of research.

The survey results reveal an investment community that obtains a broad spectrum of research from a variety of sources, believes that commission sharing arrangements (CSAs) add to transparency and improve execution, and are skeptical that greater regulation can improve the current process. The survey was conducted from May 6 to May 8, 2015, and addressed the research and regulatory regimes of both North America (United States and Canada) and Europe.

Investors report finding great value in commission sharing arrangements, with a large majority of respondents saying that CSAs provide more transparency (65%) than bundled proprietary research, and that CSAs help in achieving best execution (58%). Buyside respondents identified a variety of research types that they incorporate into their in-house process, led by independent research (90%), traditional sell-side research (85%) and industry data and access to analysts (65% each). All told, eight separate categories of research received a vote from at least forty-two (42%) of buyside survey respondents.

Despite the broad usage and recognition of value in research, two-thirds (67%) of buyside respondents said they would use less research if they were required to pay cash to obtain the information, an arrangement currently under consideration in Europe as the European Commission (EC), through the European Securities and Markets Authority (ESMA), works to finalize the pan-European regulations of MiFID II.

An overwhelming 88% say that investment managers and their staff are best placed to determine how research is sourced and paid for, with just 4% identifying regulators as best-placed. Eighty-eight percent (88%) of Europe-based respondents and ninety-three percent (93%) of North America-based respondents say that regulations regarding the use of CSAs should remain the same, or be reduced, in their home territory. Forty-three percent (43%) in Europe said they would like to see less regulation than at current levels, versus thirty-one percent (31%) in North America.

"Our respondents clearly recognize that good research and best execution often come from separate places, and that CSAs provide the flexibility to access the best of both worlds," said Tim O'Halloran, co-president of Westminster. "Investors say that research, paid for through CSAs, better informs their decisions, provides appropriate transparency, and aids in best execution. Yet, if regulations are put in place that force them to use cash, they resoundingly say they will use less research."

Full survey results are available on the Convergex website here.

Convergex's Westminster Research Associates is a single purpose broker-dealer, founded in 1993, that provides an agnostic, anonymous trading framework which allows money managers to execute through a network of over 230 broker-dealers to acquire research from virtually anywhere.


On Wednesday, May 27, 2015 at 8:30 a.m. ET (1:30 p.m. London time), Westminster co-president Tim O'Halloran will host a 20 minute webinar on CSAs, research, and the results of the Convergex – Westminster CSA & Research Usage Survey.

This webinar is free of charge and is open to members of the media. Participants will be able to ask questions of the host. Please click here to register.

The Convergex – Westminster CSA & Research Usage Survey was performed by Convergex via an anonymous online survey of financial industry participants, resulting in 278 respondents. The survey was conducted from May 6 to May 8, 2015, and has a margin of error of +/-10%. Respondents included buy-side firms (asset managers, hedge funds, pension plans), sell-side firms (banks, broker-dealers), trading venues, service providers and other financial industry participants. Rounding of decimal results may produce totals over or under 100% (by 1%).

About Convergex
Convergex is an agency-focused global brokerage and trading related services provider that takes on the industry's toughest challenges, from complicated trades to complex businesses. With clients' interests as the top priority, Convergex delivers comprehensive solutions that span global high-touch and electronic trading, options technologies, prime brokerage, clearing, commission management and beyond. Headquartered in New York with a presence in several other locations including Atlanta, Boston, Chicago, Orlando, San Francisco and London, the company serves nearly 3,000 clients accessing over 100 global market centers.

Important Information

Convergex is an agency-focused global brokerage and trading related services provider. In the U.S., Convergex offers products and services through Convergex Execution Solutions LLC (member NYSE/FINRA/NFA/SIPC), of which Convergex Prime Services is a division; Westminster Research Associates LLC (member FINRA/SIPC); and Convergex Solutions LLC, of which Connex, Jaywalk and LDB are divisions. In London, Convergex operates through Convergex Limited, which is incorporated in England and Wales (registered with company number 06262150). Convergex Limited is authorized and regulated by the Financial Conduct Authority (FCA) of the United Kingdom.

Convergex provides brokerage services primarily on an agency basis, but may operate in a riskless principal and/or net trading capacity, and in connection with certain ETF or ADR transactions, may act as principal or engage in hedging strategies. Convergex does not engage in market making or investment banking activities, other than as a selling group member.

Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document please contact the Convergex Compliance Department at (800) 367-8998.

The material, data and information (collectively "Convergex Information") that is available from Convergex is intended for institutional investor use only; is for informational purposes only; is subject to change at any time; is not intended to provide tax, legal or investment advice; and does not constitute a solicitation or offer to purchase or sell securities. Convergex Information is believed to be reliable, but Convergex does not warrant its completeness or accuracy and Convergex assumes no duty to update such information. Clients should read their account agreement(s) and documentation with Convergex carefully as those documents contain important information and disclosures about the products or services covered thereby. Convergex is not responsible for third-party information or services, including market data from the exchanges. (Rev. 4/1/15)


Michael Kingsley



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