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April 30, 2004

Breaking Out the Trade Commission

By Peter Chapman

Brokerage houses in the U.K. may soon have to itemize the commissions they charge money managers.

Britain's Financial Services Authority (FSA) is putting pressure on the industry to limit commission payments to research and executions and to break out each amount. Today, all brokers' services are bundled in the commission.

The regulator's move comes after three years of wrangling with the industry over the use of soft dollars to pay for third-party services, and the bundling of brokers' charges for proprietary research with executions.

The proposal suggests the regulator is backing off from its more controversial proposal to require fund managers to pay for research out of their own pockets rather than with clients' commissions.

Instead, it has apparently decided that if the industry is forced to disclose the components of commissions, an "explicit market price for research" will emerge. That would ensure investors are getting their money's worth.

"We have concluded we should give the industry space to develop and [test] a solution based on improved disclosure," said John Tiner, the FSA's chief executive, in a speech to the Confederation of British Industry.