Brokers move to form industry standard CSA platform

The announcement overnight that Cogent Consulting LLC, leading developer of commission management systems for the securities industry, has signed a letter of intent for the sale of a majority of the company to a group of major global institutional broker-dealers, is the strongest signal yet that brokers have taken up the challenge to create an independent, industry standard platform for processing commission sharing agreements.

The demise of Lehman Brothers in September last year was a wake-up call to asset managers and other investors that the single-broker aggregator model for managing commission sharing agreements (CSAs) has its flaws. CSAs and the US equivalent CCAs enable money managers to accumulate credits from trading that can then be allocated to service providers for the payment of certain research or brokerage/execution services that they value. Reliance on a single equity broker to manage all these research commission funds leads to significant counterparty and operational risks, particularly in the current volatile financial markets. This realisation has put a number of alternative models in the spotlight of which an independent, industry standard aggregator based on technology such as Cogent’s CSA Trak is the front runner. This model will enable multiple broker-dealers and money managers to efficiently manage commission sharing arrangements (CSAs) and client commission arrangements (CCAs), through a single online portal that shows all balances and activities both by broker-dealer and virtually aggregated. As Robin Hodgkins, President & CEO Cogent says in the press release "The objective of this transaction is to have a widely used industry platform that will make it easier and cost-effective for broker-dealers to offer CSAs and CCAs and for money managers to take advantage of them".

With none of the broker-dealers individually acquiring a controlling interest in Cogent, and the current successful management remaining in place, market participants can now connect to a single platform with a single interface to manage their CSA requirements across all their counterparts, rather than use a patchwork of systems. From our experience over recent years working with Cogent (MPI Europe are European implementation partners for all Cogent’s products including CSA Trak) we have found their technology to be the most robust, flexible, easy to use, and cost-efficient solution. Also the platform is tried and tested with a growing number of broker and asset management firms using it over the last two years - proving that Cogent understands the needs of institutional brokers and investment managers. Hence I see this announcement as a very positive sign for the market, allowing firms to overcome issues around CSAs/CCAs stemming from recent market shocks.