State Street Buys Commission Management Specialists

With a stroke, State Street Global Markets greatly enhanced its commission management services.

The broker-dealer arm of the investment monolith on Tuesday (March 11) purchased technology vendor FinancialSockets for its commission management expertise, as well as to provide its institutional buyside customers a complete range of those services.

FinancialSockets is a technology vendor that provides asset management firms tools to manage and accurately report their research and execution commissions usage. Their software products compete with Cogent Consulting’s ResearchTrak and SoftTrak, and BNY ConvergEx Group’s Commission Management Utility. They include ways to manage or administer a firm’s research and execution commission flows, regulatory reporting requirements and client commission arrangements–also called CCAs.

“The assets that attracted us were the intellectual capital and the IT capabilities, the systems, of FinancialSockets,” says Nick Bonn, who runs the equity trading and transition management business as executive vice president for State Street Corporation.

Armed with FinancialSockets’ commission management technology prowess, Bonn adds, State Street can help its buyside clients in this segment more efficiently and completely.

“We recognize that [the buyside has been] having trouble coping with commission management, with administering their commission pools over a number of research providers and administering these CCAs,” Bonn says. “We think State Street’s positioning is perfect for providing an additional service to them.”

Prior to the acquisition, Bonn notes, State Street had established a commission management program by leveraging personnel and resources from its extant commission re-capture business.

For Hoboken, N.J.-based FinancialSockets, the acquisition means it should be able to reach more buyside customers with its products and services, says Robin Howard the firm’s chief executive.

“We were growing steadily from new sales as a company,” Howard says, “but we realized back in early 2007 that to really attain the full potential for what we were offering we needed a partner with greater distribution capabilities and an infrastructure that we could leverage to really scale this.”

Such services are more important to the buyside these days as regulators repeatedly revisit the subject of soft dollars. The Securities and Exchange Commission last month updated its stance on the subject when it proposed investment advisers disclose more information to their clients about their soft dollar usage. The proposed rules would force money managers to describe their soft dollar use in more detail and make that information accessible on the Internet.

In the future, Howard expects disclosure and transparency to drive any new SEC regulation on soft dollars. This, he adds, will continue to put a burden on the asset manager to have in place detailed record keeping that shows how they’re utilizing their clients’ commissions.

Neither State Street nor FinancialSockets would disclose any terms of the acquisition.