UK - Institutional investors in the UK plan to decrease their use of full-service broker research in favour of independent research after the Financial Services Authority's (FSA) new rules on bundled brokerage and soft commission arrangements are fully implemented, according to Greenwich Associates.
A survey completed by the consultant suggested the FSA final rulings on bundled brokerages and soft commission arrangements are already beginning to bring about changes sought by the regulator.
The rules are aimed to address the lack of transparency associated with soft commissions and designed to promote improved management of conflicts of interest between investment managers and their clients.
However Greenwich Associates warned the research raised important questions about the efficacy and potential unintended consequences of new policies aimed at minimising those conflicts.
“The study reveals that UK institutions anticipate cutting back on their broker lists for trade execution in the wake of the new regulations and also expect to increase their use of low -touch or self-directed electronic trading,” said Greenwich Associates consultant Jay Bennett (pictured).
Taken part by 31 UK buy-side institutions, the survey revealed more than half are currently providing full “Level 1” disclosure to their clients as defined by the FSA, and roughly 30% say they are providing “Level 2” disclosure to some extent.
“In order to meet the new requirements regarding transparency in the payment of equity brokerage commissions, institutions are mostly using pricing input from brokers and proxies of commission rates on low-touch and no-touch trades to determine the cost of pure “execution””, said Greenwich Associates consultant John Colon.
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