A group of leading institutional broker dealers is acquiring a majority stake in Cogent Consulting LLC of Summit, N.J. to offer an industry-wide commission management service to money managers sell-side firms and research providers that diversifies counterparty risk.
On Tuesday, Cogent announced the sale of a majority stake in the company to the group of brokers, which signed a non-binding letter of intent.
The brokers are the same firms that were holding discussions with Cogent and possibly other vendors about forming a consortium to mitigate the counterparty risk associated with holding commission balances at a broker-dealer.
“This is absolutely geared around having a neutral entity providing a standardized tool and set of procedures to managing CSAs for the entire industry. It definitely builds on the conversations we had with the co-called consortium,” said Robin Hodgkins, president and CEO of Cogent in an interview with Advanced Trading. Hodgkins expects the transaction to close before July 4th, and at that point, the brokers are going to identify themselves, he said.
Seven-to-ten global firms with recognizable names are said to be members of the group. None of the brokers will acquire a controlling interest in Cogent and the current owners, (Hodgkins and his wife), will remain a minority stake owner in the company. Hodgkins will continue to run the firm and the original management team will remain in place. Hodgkins said he couldn’t provide more details until definitive agreements are signed.
Hodgkins said large global firms wanted a stake in the company because they want to be able to participate in the direction of the company and he believes this going to be fundamental to the company’s growth. After doing months of review on the products and company, they shifted to having their strategic investments area participate, said Hodgkins. “They felt this was a huge area of potential growth that could generate significant returns over the long term,” said Hodgkins. Conversely, they will be treated as clients and have to licenses on the same terms as every other client and pay the same licensing fees.
The consortium will utilize Cogent’s CSA Trak product, an online portal, which enables multiple broker-dealers and money managers to manage commission sharing agreements (CSAs) and client commission arrangements (CCAs). The product handles multiple asset classes and multiple currencies. There are 100 money managers and 70 brokers using Cogent’s CSA products.
Buy-side institutions will be able to use a portion of the CSA Trak system on a no-charge basis. They will not have the full functionality of the services that are in the Cogent’s buy-side products, but they will enough to see their balances and make payments and see broker-level statements.
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