Counterparty Risk Dominates Commission Sharing Arrangements

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CSAs have become more widespread despite market turmoil but users are selective in choosing CSA platforms. A new study from Integrity Research identifies the top CSA brokers in the US and globally.

In the wake of Lehman's bankruptcy, counterparty risk has become a key concern for investors entering Commission Sharing Arrangements, which facilitate the payment for investment research with trading commissions, according to a study released by Integrity Research, a specialist research firm covering the investment research industry.

In its latest edition of Integrity ResearchFocus(SM), which reviews key segments of the investment research industry, Integrity surveyed 105 investment firms, including hedge funds, mutual funds and investment advisors, in the fourth quarter of 2008 to determine their usage of commission arrangements. Based on the survey, Integrity also identified the leading commission platforms for North America, multi-region and overall, as part of its Top Picks for CSA Brokers.

Counterparty risk was cited by over 80% of respondents as a concern with existing commission platforms. "The bankruptcy of Lehman Brothers was a shot heard around the financial world," says Michael Mayhew, Integrity's chairman and co-author of the study. "Large asset managers generate sizable balances, and the prospect of losing CSA dollars has created an unprecedented level of client concern over counterparty risk."

Interestingly, research firms surveyed by Integrity did not report any lost payments resulting from the Lehman bankruptcy. From Integrity's interviews with research industry participants, it appears that Barclays Capital ensured that clients of the former Lehman Brothers received their commission balances.

Commission sharing arrangements have been growing in popularity over the last 12 months, and that trend appears to be continuing despite the current market turmoil. "Only 15% of existing CSA users expect any drop-off whatsoever in their CSA usage," says analyst Ronit Bhattacharyya, co-author of the study. "Conversely, 36% of existing CSA users plan to increase the percentage of commissions flowing through CSAs over the next 12 months."

Integrity's 90-page ResearchFocusSM report includes comparative analysis of the commission platforms offered by the leading CSA brokers, results of Integrity's survey of buy-side users of commission platforms, Integrity's projections and analysis of the future for commission arrangements and reports on each of the leading commission platforms.

The reports are used as a "buyers guide" by broker liaison staff, research directors and analysts at institutional investors. For additional information on the current edition of Integrity ResearchFocus(SM) go to or contact Matthew Bannister at 212.845.9088.

About Integrity Research
Integrity Research Associates, LLC is an information and solutions provider specializing in the investment research industry. Its institutional investor clients use Integrity's services to find new research providers and monitor existing ones. Integrity ResearchSelect® provides confidential, customized searches tailored to investors' requirements. Integrity covers over 1,900 research firms in the U.S., Europe and Asia.

Integrity ResearchSelect is a registered trademark of Integrity Research Associates, LLC. Integrity ResearchFocus is a service mark of Integrity Research Associates, LLC.


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