Brokers Hash Out Details of CCA Consortiums to Allay Buy Side Concerns

Moving commission balances into a neutral entity is under consideration

Bulge-bracket brokers are discussing ways to create a CCA aggregation solution that would consolidate buy-side client commission dollars in a neutral entity to safeguard client monies in the event of a sell-side trading partner were to go out of business.

“There are three (or four) initiatives underway currently in varying degrees of compatibility but they all have one basic theme which is that the brokers are working very aggressively to provide a solution that will give their buy-side clients confidence that the CCA monies are safe,” according to Robin Hodgkins, CEO of Cogent Consulting LLC in Summit, New Jersey, who is privy to these discussions. Since Cogent is a leading player in the commission management space for investment managers, Hodgkins is in touch with brokers. He also hears concerns from his buy-side clients who track their commission pools at multiple brokers and pay research bills through his system.

One idea that brokers are considering is consolidating client commission dollars in a neutral third-party entity to protect the assets in the event of a sell-side counterparty going out of business. The neutral entity could be a technology provider that is not in the brokerage business. Alternatively, they are looking for the brokers to provide a mechanism through which buy-side clients can distribute or disperse their CCAs amongst more brokers, so there’s no single failure point that could point a significant amount of money at risk, says Hodgkins. In either of these models, there’s a move to pay down balances on a more rapid basis.

They are also looking at ways to put an insurance wrapper or guarantee around the commission balances and to establish a central payment mechanism for dispersing the monies to research providers.

While the solution is not yet set in stone, and could involve multiple initiatives or consortiums to address the various buy-side concerns, brokers are talking to several software vendors that have commission management technology. Some of the contenders include Cogent, whose CSA Cloud is a portal that aggregates commission balances in a neutral place and TheMarkets.com, a sell-side owned portal that distributes sell-side research and has entitlement controls.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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