JonesTrading plans to grow its commission management business with the recent hire of an industry veteran and will shortly roll out a new product that will give clients greater control of their commission payments to research providers.
The execution-only broker known for its block trading prowess has hired 15-year industry veteran John McGough to lead the expansion of its global commission management service. JonesTrading hopes the new offering will increase its soft-dollar arrangements to 25 percent of its business overall from just 5 percent today.
A recent study by Tabb Group found that 85 percent of buyside firms expect to be using commission sharing agreements by year’s end, which would be an increase of 9 percent over the end of last year.
JonesTrading is aiming to launch a new Web-based CSA portal later this summer. The online portal is designed so clients can aggregate and manage their CSA businesses across multiple brokers and across markets worldwide.
The buyside has numerous challenges in trying to manage broker relationships across borders, especially as they pertain to commission management, CSAs, and soft dollars, according to McGough.
"One of the driving forces behind our efforts now is to offer our clients the ability to tie all their commission management businesses together and to manage everything they’ll be doing with JonesTrading through a single Web-based application," McGough said.
Wherever clients are trading, they will soon be able to take a look at all of the business they do with Jones and to manage their commissions without having the additional administrative burden of going from one system to another, McGough added.
JonesTrading is not alone in looking to expand into the area of commissions management, McGough pointed out. But he thinks his product has a different twist that should appeal to clients.
The system is similar to the one offered by Westminster Research Associates and other companies that collect credits from multiple brokers and then make payments to researchers.
With those systems, however, the credits are all deposited in one place, and McGough said that could be a problem if there is a repeat of the kind of disaster that happened with Lehman Bros.
As a result of the Lehman bankruptcy, millions of dollars in the commission pool were tied up, and to this day many investment advisers and hedge funds have not been able to utilize those commissions to help pay for research.
"Our new platform will offer JonesTrading’s clients the ability to virtually aggregate their CSA commission balances across multiple brokers," McGough said, "which we believe is a much better option for our clients from a counterparty risk perspective."
McGough said the firm’s commitment to CSA programs is necessary, given the steady growth of CSAs since 2007.
Packy Jones, chairman and chief executive officer of JonesTrading, said the company is trying to be pro-active in helping clients with CSAs.
"I’ve always tried to build businesses around strong people that understand the space, and John obviously does," Jones said. "He’s amazed me with some of the products he’s brought to us already."
Since 2008, McGough had been at BTIG, where he was director of commission management services. As a managing director at JonesTrading, he reports directly to Jones as well as to the company’s chief operating officer and the chief financial officer.
Jones said that while everybody’s business has been down in the past few years from the peak of 2008, his firm noticed that its business from CSAs has weathered the storm much better than expected.
"We thought, ‘It’s a lot stickier business-it would sure be nice to do more of this,’" Jones said.
Once the platform is in place, JonesTrading plans to do a road show around its 14 offices. So far clients’ response has been very positive, according to Jones.
Commenting generally, John Meserve, an executive managing director at ConvergEx Group and chief executive officer of the firm’s Westminster Research Associates, said everyone is currently looking to do more with CSAs.
"Every firm in the industry is trying to get involved in CSA business," he said. "They want to either be on the receiving end of check or on execution end of the business."
