Managing your transition to MiFID II just got easier – ResearchPool now accepts payments via CSAs
As observers wait for the MiFID II delegated acts, financial markets prepare for a transitional period. How are portfolio / asset managers going to manage their transition over the next year (or potentially two) to a MiFID compliant research solution? The solution probably lies with the Commission Sharing Agreements (CSAs).
Using CSAs on ResearchPool
This is a key milestone for ResearchPool, positioning us as an attractive solution for research acquisition and access for the large number of asset managers across Europe that are not ready to use their own money i.e. hard dollars to pay for research or create a specific client charge for it.
It’s a simple process. Portfolio / asset managers just have to create a professional account with ResearchPool and then instruct the invoice for subscriptions to be paid via relevant CSA. ResearchPool will deal with the rest. And as an aggregator, ResearchPool allows portfolio / asset managers to considerably reduce their number of invoices and finally track actual research consumption.
Soft Dollar & Hard Dollar Transactions
CSAs are a type of soft dollar arrangement that allow portfolio / asset managers to use clients’ money to pay for execution and research in a segregated manner. Under the arrangement, execution brokers, also known as agency only brokers, which are also the CSA administrators, are asked to allocate a significant part of the dealing commissions to cash accounts in the name of portfolio / asset Managers. The cash accounts are then used by asset managers to pay for 3rd party research.
Based on the last draft text of the delegated acts circulated, RPAs (Research Payment Accounts) to be introduced by MiFID II, can be funded by the dealing commissions. As a result, RPAs may be viewed as an enhanced CSA model with a transparent budgeting process and quality enforcement.
Other options for portfolio / asset managers for research acquisition include the use of their own money or funding the RPAs using a charge other than dealing commissions. But neither of those seems to be a realistic option for most.
Growing CSA Market
Adoption of CSAs by the portfolio / asset managers community has been growing, as they provide a more transparent and more flexible way of paying for research than the traditional bundled agreements whereby only research from prime brokers can be accessed. As an added bonus, they have fewer inherent conflicts of interest.
If you are a portfolio / asset manager, don’t spend more time wondering how to deal with MiFID II without significantly disrupting your fee schemes with your clients. Start by adopting the current form of CSAs with our execution partners (either Instinet or ITG) and then add additional processes to deal with the transparent budgeting and quality enforcement required by MiFID II.