More buyside firms are adopting commission management programs. That has cost many sellside shops their trading relationships.
The average buyside firm is cutting client commission arrangement checks for research to almost 19 sellside shops with which they formerly traded, according to a new Greenwich Associates study on soft dollars and commission management arrangements.
In addition, some institutions use CCAs to transform these relationships more than others, the study found. Mutual funds, pension funds and endowments, for example, have rearranged their trading relationships the most. And in large part, the more an institution pays in commissions annually, the larger the number of trading relationships it switches to CCA payments.
Since the Securities and Exchange Commission clarified commission dollar use for research and corporate access in July 2006, more institutions have been adopting CCAs to unbundle their commission spend. The Greenwich study estimates that 47 percent of all institutions will adopt CCAs by the end of this year, up from 27 in 2007.
Mutual funds led the way in CCA-related relationship shake-ups by dropping an average of 32 trading partners. Pension funds and endowments followed suit and have dropped almost 27 trading partners, on average.
Also, those institutions paying more than $50 million in commissions cut almost 32 trading counterparties. The Greenwich study was based on the responses of 272 institutions, more than half of which-145-were categorized as investment managers.
“As would be expected, the buyside loves the newfound power of CCAs, viewing them as a way of obtaining both best execution and best research, and not necessarily from the same firm,” said Robin Hodgkins, president of Cogent Consulting, which develops commission management solutions for the buyside and sellside.
The culling should continue, too. The Greenwich study said 44 percent of responding institutions expected to shorten their lists of trading counterparties.