Buy Side Favors CSAs: Survey

Terry Flanagan

Commission sharing arrangement provide greater transparency than bundled proprietary research, and help in achieving best execution. That’s according to the CSA & Research Usage Survey by Convergex, an agency-focused global brokerage and trading related services provider, and its Westminster Research Associates commission management business.

The survey, which gauges how financial industry participants use research in their investment decisions and industry sentiment about proposed regulations regarding the acquisition and use of research, reveals an investment community that obtains a broad spectrum of research from a variety of sources, believes that commission sharing arrangements add to transparency and improve execution, and are skeptical that greater regulation can improve the current process. The survey was conducted from May 6 to May 8, and addressed the research and regulatory regimes of North America and Europe.

Buy-side respondents identified a variety of research types that they incorporate into their in-house process, led by independent research (90%), traditional sell-side research (85%) and industry data and access to analysts (65% each). All told, eight separate categories of research received a vote from at least 42% of buy-side survey respondents.

Despite the broad usage and recognition of value in research, two-thirds (67%) of buy-side respondents said they would use less research if they were required to pay cash to obtain the information, an arrangement currently under consideration in Europe as the European Commission (EC), through the European Securities and Markets Authority, works to finalize the pan-European regulations of MiFID II.

An overwhelming 88% say that investment managers and their staff are best placed to determine how research is sourced and paid for, with just 4% identifying regulators as best-placed. Eighty-eight percent (88%) of Europe-based respondents and ninety-three percent (93%) of North America-based respondents say that regulations regarding the use of CSAs should remain the same, or be reduced, in their home territory. Forty-three percent (43%) in Europe said they would like to see less regulation than at current levels, versus thirty-one percent (31%) in North America.

“Our respondents clearly recognize that good research and best execution often come from separate places, and that CSAs provide the flexibility to access the best of both worlds,” said Tim O’Halloran, co-president of Westminster. “Investors say that research, paid for through CSAs, better informs their decisions, provides appropriate transparency, and aids in best execution. Yet, if regulations are put in place that force them to use cash, they resoundingly say they will use less research.”

Convergex’s Westminster Research Associates is a single purpose broker-dealer, founded in 1993, that provides an agnostic, anonymous trading framework which allows money managers to execute through a network of over 230 broker-dealers to acquire research from virtually anywhere.

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