Commentary

Richard Repetto
Traders Magazine Online News

Why Do Exchanges Own Multiple Licenses? It's Not Hard To See, Look at the SEC

In this recent research note, Sandler O'Neill + Partners, L.P. Principal Richard Repetto examines why the public exchange operators hold multiple licenses and that rationale behind this phenomenon.

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January 2, 2007

How CSAs Started in the States

By Editorial Staff

In the 1920s and 1930s many mom-and-pop brokerages in rural America could attract orders, but they weren't very good at executing them. So alliances, and eventually the sharing of commissions with big brokerages in New York, were born, according to Lee Pickard, a Washington D.C. securities attorney and the former director of the Securities and Exchange Commission's Division of Market Regulation.

"This is how commission sharing arrangements began," he says. "Firms set up operations in Peoria or some small town and found they just weren't nearly as good at executing as some huge firm in New York City."

CSAs provided a brokerage division of labor, he notes. As the years went by, CSAs became more complex, Pickard says.

The popularity of CSAs increased after the de-regulation of commission rates in 1975, adds Michael Caccese, a securities attorney in Boston. He says the use of CSAs grew because money managers were looking for research, but were hesitant about Wall Street's conflicted product. So research brokerages, he says, were born to fill that need. Research and executing brokerages started to share commissions, according to Caccese.