Fidessa group plc announced today a new partnership with Commcise which delivers a transactional method for funding Research Payment Accounts (RPAs). This will allow the industry to support evolving MiFID II regulatory requirements while improving operational efficiency.
Currently, an estimated 75% of European buy-sides pay for research via Commission Sharing Agreements (CSAs) which allows them to reward providers of research via dealing commissions but under the new rules released by the European Commission in April this year, buy-sides must clearly demonstrate that the research charge is separately identifiable to the client. In addition, they need to be able to demonstrate that they have robust processes in place for tracking and measuring what is spent.
One approach to the problem is to charge upfront research fees to end investors which are then used to fund an RPA. This approach, however, requires renegotiation of every single relationship between the fund manager and their end investors.
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Under the traditional CSA model buy-side and sell-side firms agree commission splits in advance of executing a trade. The new approach moves this decision into the post-trade arena which makes it both more efficient and less open to conflict. Furthermore, the asset manager is now empowered to determine exactly how much commission should be added to trades at a fund level.
Fidessa and Commcise have together provided a solution that leverages the strengths of the market-leading technology that both firms represent. Commcise Buy, a buy-side focused commission management platform, provides an algorithmic rules engine that dynamically calculates research charges at allocation level for the asset manager. Fidessa’s AMS global post-trade utility provides buy-sides and sell-sides with workflow and technology to confirm and affirm these trades.
Under the terms of the partnership, AMS has been extended to support this buy-side determined research charge so that can it can be delivered directly into sell-side settlement operations.
Commenting on the new collaboration, Steve Grob, Director of Group Strategy at Fidessa, said: “Firms wishing to use an RPA have to demonstrate competence in three distinct areas: funding, research evaluation and reporting. The approach proposed by Fidessa and Commcise reuses existing CSA infrastructure to simply and effectively solve this funding challenge for the industry.”
Fidessa was approached by Commcise as they had already solved the research evaluation and reporting elements required to demonstrate compliance with the new MiFID II regulations. The company recently made headlines after announcing last month that Tokai Tokyo Securities (Asia) Limited had gone live in Hong Kong with Fidessa’s Asian trading platform as a fully outsourced service aimed at extending its usage in the region.