The growth of electronic trading and client-commission arrangements poses a strategic challenge to mid-tier and regional firms, according to John Feng, a consultant with Greenwich Associates. As more commissions are paid through these channels, mid-tier and regional firms must come up with a strategy to avoid losing trading flow and dealing with more CCA checks.
Many CCA trades are done electronically: The execution firm keeps the portion of commission associated with the trade, while passing on the portion associated with the research in the form of a CCA check.
The availability of the electronic channel has given bulge bracket firms an opportunity to venture more aggressively into the CCA space.
Historically, some bulge bracket firms were wary of the soft-dollar–or CCA–business because they thought it could cannibalize their own full-service businesses, Feng said. But electronic trading gives them a solution. Bulge firms can execute CCA trades electronically, and therefore pick up volume and cut a check to a third party for research. All the while, Feng said, the bulge firms don’t necessarily eat into their own full-service business while picking up this incremental volume.
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