This document provides an overview of the institutional equity market and the impact of commission unbundling. It discusses how equity commissions have traditionally been used to pay for various services through bundled commissions. Recent regulatory changes now allow for the unbundling of commissions, separating execution payments from research payments. This provides asset managers greater flexibility in purchasing research from a wider range of providers rather than just brokers. It also ends the oligopoly investment banks previously had over research spending. Commission unbundling presents both opportunities and risks for all market participants to maximize returns in the new regulatory environment.
This presentation by Barbara Novick, Vice Chairman of BlackRock, was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Martin Schmalz from the University of Michigan was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Einer Elhauge, Petrie Professor of law from Harvard was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Daniel Rubinfeld, NYU School of Law, was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Daniel O’Brien, Vice president of Compass Lexecon, was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
Mercer Capital | Valuation Insight | Capital Structure in 30 MinutesMercer Capital
Capital structure decisions have long-term consequences for shareholders. Directors evaluate capital structure with an eye toward identifying the financing mix that minimizes the weighted average cost of capital. This decision is complicated by the iterative nature of capital costs: the financing mix influences the cost of the different financing sources. While the nominal cost of debt is always less than the nominal cost of equity, the relevant consideration for directors is the marginal cost of debt and equity, which measures the impact of a given financing decision on the overall cost of capital. The purpose of this whitepaper is to equip directors and shareholders to contribute to capital structure decisions that promote the financial health and sustainability of the company.
In March 2016, the BCBS published a consultation regulatory document setting a new set of regulatory measures in order to reduce the heterogeneity of banks’ capital charge using IRB models. This document goes through these proposals and provides opposing views regarding these proposals from different academic references.
This presentation by Barbara Novick, Vice Chairman of BlackRock, was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Martin Schmalz from the University of Michigan was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Einer Elhauge, Petrie Professor of law from Harvard was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Daniel Rubinfeld, NYU School of Law, was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
This presentation by Daniel O’Brien, Vice president of Compass Lexecon, was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.
Mercer Capital | Valuation Insight | Capital Structure in 30 MinutesMercer Capital
Capital structure decisions have long-term consequences for shareholders. Directors evaluate capital structure with an eye toward identifying the financing mix that minimizes the weighted average cost of capital. This decision is complicated by the iterative nature of capital costs: the financing mix influences the cost of the different financing sources. While the nominal cost of debt is always less than the nominal cost of equity, the relevant consideration for directors is the marginal cost of debt and equity, which measures the impact of a given financing decision on the overall cost of capital. The purpose of this whitepaper is to equip directors and shareholders to contribute to capital structure decisions that promote the financial health and sustainability of the company.
In March 2016, the BCBS published a consultation regulatory document setting a new set of regulatory measures in order to reduce the heterogeneity of banks’ capital charge using IRB models. This document goes through these proposals and provides opposing views regarding these proposals from different academic references.
“Basel III is more about improving the risk management systems in the Banks than just Improved Quality and enhanced Quantity of capital”. Please discuss the challenges to the Indian Banks by March,2017
Regulatory capital requirements pose a major challenge for financial institutions today.
As the Asian financial crisis of 1997 and rapid development of credit risk management revealed many shortcomings and loop holes in measuring capital charges under Basel I, Basel II was issued in 2004 with the sole intent of improving international convergence of capital measurement and capital standards.
This paper introduces Basel II, the construction of risk weight functions and their limits in two sections:
In the first, basic fundamentals are presented to better understand these prerequisites: the likelihood of losses, expected and unexpected loss, Value at Risk, and regulatory capital. Then we discuss the founding principles of the regulatory formula for risk weight functions and how it works.
The latter section is dedicated to studying the different parameters of risk weight functions, in order to discuss their limits, modifications and impacts on the regulatory capital charge coefficient.
Changes to Basel Regulation Post 2008 CrisisIshan Jain
Subprime crisis
Basel Committee objectives and history
Pillars of Basel 2 and Basel 3
Basel 3 Capital Requirements
capital Rations
Capital Buffers
Leverage Ratios
Global Liquidity Standards
macroeconomic factors
Value at Risk
Expected Shortfall
Accenture 2015 Global Structural Reform Study: Unlocking the Potential of Glo...Accenture Insurance
As they reshape the financial services industry in light of the 2007-2008 financial crisis, global regulators have introduced a series of structural reform regulations to help build resilience. Global Structural Reform (GSR) is creating a new financial services ecosystem for institutions.
Accenture’s 2015 Global Structural Reform Study finds senior management working to thrive in what amounts to an all-new financial services landscape. They are investing effort and funds in their response to GSR, but their focus is on meeting regulatory demands. While that represents a good starting point, our study finds institutions might be missing out when it comes to meeting the strategic implications of reform and using reform as an opportunity to reposition the organization for sustainable growth
Mercer Capital's Bank Watch | July 2015 | Small Bank Holding Companies Regula...Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
This report touches upon themes such as increasing complex reporting requirements, growing demand for transparency, the adoption of big data technology solutions, the management of environmental, social and governance (ESG) factors in private equity portfolio companies as well as the growing popularity of various private equity fund structures, and how this is set to change over the next 12 to 24 months.
“Basel III is more about improving the risk management systems in the Banks than just Improved Quality and enhanced Quantity of capital”. Please discuss the challenges to the Indian Banks by March,2017
Regulatory capital requirements pose a major challenge for financial institutions today.
As the Asian financial crisis of 1997 and rapid development of credit risk management revealed many shortcomings and loop holes in measuring capital charges under Basel I, Basel II was issued in 2004 with the sole intent of improving international convergence of capital measurement and capital standards.
This paper introduces Basel II, the construction of risk weight functions and their limits in two sections:
In the first, basic fundamentals are presented to better understand these prerequisites: the likelihood of losses, expected and unexpected loss, Value at Risk, and regulatory capital. Then we discuss the founding principles of the regulatory formula for risk weight functions and how it works.
The latter section is dedicated to studying the different parameters of risk weight functions, in order to discuss their limits, modifications and impacts on the regulatory capital charge coefficient.
Changes to Basel Regulation Post 2008 CrisisIshan Jain
Subprime crisis
Basel Committee objectives and history
Pillars of Basel 2 and Basel 3
Basel 3 Capital Requirements
capital Rations
Capital Buffers
Leverage Ratios
Global Liquidity Standards
macroeconomic factors
Value at Risk
Expected Shortfall
Accenture 2015 Global Structural Reform Study: Unlocking the Potential of Glo...Accenture Insurance
As they reshape the financial services industry in light of the 2007-2008 financial crisis, global regulators have introduced a series of structural reform regulations to help build resilience. Global Structural Reform (GSR) is creating a new financial services ecosystem for institutions.
Accenture’s 2015 Global Structural Reform Study finds senior management working to thrive in what amounts to an all-new financial services landscape. They are investing effort and funds in their response to GSR, but their focus is on meeting regulatory demands. While that represents a good starting point, our study finds institutions might be missing out when it comes to meeting the strategic implications of reform and using reform as an opportunity to reposition the organization for sustainable growth
Mercer Capital's Bank Watch | July 2015 | Small Bank Holding Companies Regula...Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
This report touches upon themes such as increasing complex reporting requirements, growing demand for transparency, the adoption of big data technology solutions, the management of environmental, social and governance (ESG) factors in private equity portfolio companies as well as the growing popularity of various private equity fund structures, and how this is set to change over the next 12 to 24 months.
Hwanyu Eye Cream Since Hwanyu Eye Cream solves the problem of abnormal circulation vital energy and blood of the skin around the eyes generated by aging and facilitates blood circulation. It immediately makes the skin around the eyes moist and clean and removes the trace of time. [Hwanyu- Immortal masterpiece flying up to genuine immortality] Hwanyu contains ingredients like "natural Wild ginseng Cordyceps sinensis', 'Antler Cordyceps sinensis', 'Pleuropterus Cordyceps sinensis', snow lotus herb and dreams of becoming more excellent masterpiece with eternal youth, imperishability, unchanging immortality. Witness the splendid flight of Hwanyu renewed with combination of miraculous ingredients. directionAfter Using Hwanyu Essence or Before Using Hwanyu Cream, take proper amount out of the vessel with your middle finger and put your fingertips together. Then warm your fingertips by rubbing them four or five times. Place some dots on the skin around your eyes and mouth with this eye cream and then lightly pat parts of your face. Finish rubbing such parts of your face with your fingertips. If you gently press acupressure locus around your eyes when you use this eye cream, efficacy of this eye cream will be enhanced. size25ml - See more at: http://www.bestmadeinkorea.com/product-40489/Home-Garden/Hwanyu-Eye-Cream.html#sthash.5WNr2cho.dpuf
The UK investment management industry is at a turning point. Traditional active managers have already had to adapt to changes in the institutional market, but now they face a confluence of trends – from regulation to pension auto-enrolment to the growth of passive investing – that could radically reshape the retail side of their industry as well.
In the last few years, the financial markets have undergone dramatic change. While some of this is down to natural evolution, much of the change can be directly attributed to new rules introduced in the wake of the 2007 crisis. Regulators, legislators and central bank governors have been determined to avert another bubble bursting or an unexpected event that could threaten markets. Lawmakers have targeted key financial practices for reform, radically altering the expectations and behavior of industry participants. The combination of the Dodd-Frank Act, European Markets Infrastructure Regulation (EMIR), MiFID ll and Basel lll signify the biggest regulatory change in decades. These reforms have resulted in major change to how financial products are traded, settled, collateralized and reported, resulting in deep and ongoing structural changes to the markets.
There is no doubt that these new rules are directly impacting buy-side firms — be they asset managers, hedge funds, insurance companies or pension funds. But while the changes have certainly brought challenges, they have also brought opportunities. Firms that can proactively evaluate structural and operational dislocations in the marketplace and tailor business models to leverage the opportunities while addressing the challenges will be in the best position to stand apart from their competitors. Revised business models call for revisions to supporting processes and systems. Buy-side firms should look to re-architect their processes and technology infrastructure, with a goal to strengthen risk control and oversight, enhance transparency and improve efficiency of front-to-back office control functions.
The credit crisis, and the regulatory response it spawned have fundamentally reshaped financial markets for buy-side firms. But while the changes have brought about challenges, they have also ushered in opportunities. The key to success will be the speed with which firms are able to understand the changing marketplace and adapt their business models to align with the changes.
Accenture 2015 Global Structural Reform Studyaccenture
Accenture’s 2015 Global Structural Reform Study – based on a survey of 131 banking, insurance and capital markets institutions across regions – confirms that, while institutions are investing in their response to Global Structural Reform (GSR), their plans still appear focused on meeting regulatory demands alone, rather than accounting for the more strategic implications of structural reform.
Highlights from the study's conclusions include:
- GSR is re-writing the financial services landscape
- Investment is clear, but strategy less so
- Three suggested principles for unlocking the potential of GSR
Download the report and visit https://www.accenture.com/accenture-2015-global-structural-reform-study.aspx to learn more.
Online Retail Bank aims to be the one-stop shop for as various financial services as possible on behalf of retail customers. Online Retail Bank has extended a criteria-based marker system which is simple and effective in estimating a wide range of diverse financial industries on their financial impact. Only financially sensible/performing financial industries are evaluated, guarantee that its recommendations make both financial and retail sense.
Corporate Governance Trends, Regulatory Changes & their Impact on Investment ...OTC Markets Group Inc.
This webinar focuses on a discussion regarding how changes in corporate governance approached by the institutional investor communities can impact international investor relations strategies for global companies. Learn practical advice on how the corporate governance approach of institutional investors can impact your investor targeting goals. You can view a recording of the webinar here: https://youtu.be/bkC2Wb3lo5Y
The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
1. Introduction to Global Commission Unbundling
Market Structure Change: Upending the Status Quo
Risks and Rewards
July 2012
Frost
Consulting
2. How do the economics of the institutional equity market work?
Frost
Consulting
2
3. Equity Commissions
The “Currency” of the Institutional Equity Business
Frost
Consulting
Equity commissions are attached to every trade to pay for services.
Asset Manager #1
Equity Order:
BUY 1 Million IBM
Broker
Equity Trade
Shares
Purchased
Exchange
Equity Commissions
How big is this market?
Cash for Equity Trade
Asset Manager #1 Broker
Asset Manager #2
(Seller of Shares)Broker
3
4. 33%
$ 10.9 Bln
Execution
67%
$ 22.1 Bln
Non-Execution
Pays for the physical cost
of trading and clearing the
transaction.
Pays for all non-execution
services including:
Investment Research
Institutional Secondary Equity Commissions
4
Frost
Consulting
Most equity commissions are split into 2 components:
2011e: $33 Billion
Key Point: Commissions belong to the asset manager’s client – not the asset manager.
But, the asset manager decides where and how to spend them.
* Frost Consulting Estimates
5. Key Points:
Asset managers use commissions to buy goods and services, because it’s not their money. It belongs to their
asset owner clients. (Pension Funds/Mutual Funds)
Consequently, the majority of research purchased by asset managers (~$20 billion per annum) is bought via
commissions.
In the bundled commission environment, the 2 commission components (execution and non-execution) are
inseparable and are captured by the broker executing the equity trade.
Therefore, the only way for asset managers to buy research (and related services) using their client’s money, was
to buy them from companies with an equity execution capability (investment banks/brokers).
It was the act of equity execution which generated the commissions which could be used to buy goods and
services.
This meant that investment banks/brokers had a very high market share of asset manager research spending.
For the last 30 years most asset managers have bought research from fewer than 100 investment banks. Even
though thousands of other types of research producers generate information that could aid asset manager
investment decisions, these could only be purchased with the asset manager’s own funds, rather than with their
clients’ money.
The Bundled Commission Environment
Frost
Consulting
5
6. 2003 – FSA (CP-176) Commission Unbundling
(Unbundling mandatory for UK asset managers)
2006 – SEC creates similar CCA structure.
2007 – MiFID indirectly supports CSAs via Best X Requirements
2010 – ERISA : Research Spending Reporting Requirement
(Dept. of Labor requires US pension funds and their underlying asset managers
to justify research spending - CSAs will be central to this process.)
6
Regulatory Evolution
Frost
Consulting
7. Regulatory changes (Commission Sharing Agreements: CSAs) now allow asset managers to unbundle or split their
brokerage commissions between the execution and the non-execution components. The execution portion goes to
the broker executing the trade. The non-execution portion goes into a separate account.
The accumulated funds in the separate account can be used to buy research from any type of research producer
(not just brokers), just like a regular bank checking/current account.
The de-regulation of commissions means that the asset managers’ content universe is now virtually limitless
because they can use commissions to buy new sources of research without having to pay for it via an additional
equity execution relationship. As a result, forward-looking asset managers are rapidly adding research sources and
reducing the number of equity execution relationships.
This ends the 35 year-old oligopoly of investment banks over asset manager research spending.
Asset owners, asset managers and investment banks will have to adjust their strategies to maximize returns in this
new regulatory environment.
Commission Unbundling:
Significant Implications for All Market Participants
Frost
Consulting
7
8. $21.4 Bln $9.1 Bln
CSAs: Asset Manager View
Exploding the Asset Manager Content Universe
Typical Trade
Client CSA Account
(Held by CSA Broker)
CSA Execution
Broker
Research
Commission – 8 Bps
Execution
Commission – 4 Bps
8
$22
Billion
Globally
Historic Inputs
New Inputs
$11
Billion
Globally
Frost
Consulting
Asset Manager
$22
Billion
Globally
$11
Billion
Globally
Historic ~100% market share going
in one direction – down. This will
prompt investment banks to cut
research budgets further.
Implications
Rewards/Risks for Asset Managers:
Opportunity to generate more alpha
from widened content universe.
Many will have to revamp research
procurement process to take
advantage.
Asset managers that do not unbundle
and widen research universe will be
at a competitive disadvantage in an
increasingly global marketplace.
Plan Sponsors:
Must develop new ways to measure
the risk/reward of their managers
research procurement processes.
Content Producers:
Large opportunity to access $20
billion in annual asset manager
research spend.
Challenge to circumvent asset
manager content firewalls.
* Frost Consulting Estimates
9. Bundled
Research Universe Unbundled Research Universe
Most asset managers buy research
from < 100 investment banks.
This is the new battleground for
differentiated asset manager alpha.
Question for Pension Funds: Where are your asset managers on this spectrum?
~4,600
Asset Owner Challenge:
Are Asset Managers Leveraging Market Structure Change?
Frost
Consulting
Declining Research
Budgets
Proprietary Research
Network
Losers Winners
9
10. Asset Management Overview
8,000 Institutional Equity managers.
$30 trillion in assets under management.
$200 billion in asset management fees
per annum.
>$20 billion spent on the purchase of
equity research per annum.
Investment Banking Research
~750 conventional equity brokerage firms.
~$5 billion in “sell-side” research budgets per
annum.
3,000 “publishing” analysts producing ~300,000
documents per annum.
Non Investment Banking Research
Economic, industry, strategy consultants, expert
networks, academics, industry journals.
~30,000 producers (English Language)
producing ~2 million documents per annum.
Global Institutional Equity Business
Information Explosion
Frost
Consulting
10
12. Percentage of Total Volume Traded
50% 40%
Unbundled Commissions: Regional Penetration
CSAs are growing rapidly as asset owners, asset managers and regulators recognize their benefits.
12
Frost
Consulting
70%
Europe (Ex-UK) USUK
13. Estimated 5 Year CAGR: 20%
CSAs: Required Services
Who is performing/
monitoring these
tasks at the underlying
asset manager?
Reporting Transparency
Challenges for Asset Owners/Managers to Meet ERISA Requirements
Harnessing “Big Data”
Is there one person or
group with oversight
responsibility for the
entire process?
Up to $800 million per annum may be unintentionally left with CSA execution
brokers though sub-optimal asset manager commission allocation practices.
Does your fund demand
commission allocation
transparency?
Questions for Pension Funds:
Global CSAAnnual Market Metrics CSAServices Market
(2011e)
Face Value CSA Equity Trades ~$10 Trillion
Number of One Sided Transactions 1.0 Billion
Distributable CSA Commissions $6.6 Billion
3rd Party CSA Payments $3.3 Billion
Number of Discrete Bilateral CSAs 11,200
3rd Party CSA Recipients ~135,000
Annual Number of Payments ~530,000
Contractual Services
Messaging
Audit Trail
Matching
Reconciliation
Custodial Services
Payment Services
Estimates: Frost Consulting
13
Required CSA Services
Frost
Consulting
14. ERISA – New Reporting Regulations
From July 2010 all ERISA funds will have to report annually to the Department of Labor
A) All counter-parties paid more than $5,000. This includes brokerage commissions paid
by their underlying asset managers for research.
B) The fund, via the asset manager, will have to value the research purchased to ensure
that the cost was “reasonable”.
This is a material change in the level of regulatory scrutiny applied to non-execution commissions. “Failure to
Monitor Plan Expenses” is a frequent complaint in ERISA class-action lawsuits. Brokerage commissions are
Plan Expenses.
14
Regulatory Scrutiny
Most asset managers’ investment processes are not designed to deal with this new regulatory regime.
Frost
Consulting
15. 15
Including:
Ongoing ERISA Class Action Investigations (62)
The most effective agent of
compliance is not the Department
of Labor. Class action lawyers get
a portion of the ERISA class
action settlement fee and are
therefore far more motivated than
regulators to pursue cases in
which there is insufficient
transparency in the institutional
research commission allocation
process. ($20 billion per annum).
Enforcement
Frost
Consulting
16. Commission unbundling offers both opportunity and risk to most market participants.
Plan Sponsors – face performance risk/opportunity depending upon the effectiveness with which underlying
asset managers address market structure change for research procurement.
- face regulatory risks relating to ERISA reporting requirements.
Asset Managers – face performance (and commercial viability) risks depending upon the effectiveness
with which they address market structure change for research procurement.
- face client and regulatory risks relating to the more complex CSA payment environment.
Investment Banks – face challenges adjusting their cost bases to a reduced revenue streams as they lose market
share in asset manager research spending.
- risk being disintermediated (paid via CSA from other banks rather than via execution). If they
fail to offer competitive CSA execution products they risk irrelevance in the execution market.
Conclusion
Frost
Consulting
16
17. 17
For more information please contact:
Neil Scarth
UK cell +(44) 774 865 2356
neil.scarth@frostconsulting.co.uk
Legal Disclaimer Notice
This document has been produced by Frost Consulting, LLC. Everything in this document is provided "AS IS: and without warranty of any kind. We have made every effort to
offer current, correct and clearly expressed information as possible. Inadvertent errors can occur and changes will be made when any error is brought to our attention. By
providing this document, Frost Consulting, LLC shall not be held liable, or undertake any responsibility whatsoever, for the content of third party information. All content and
material on this site is the exclusive property of Frost Consulting, LLC, and may not be republished without expressed written permission.
Frost
Consulting
Additional information/analysis at:
www.frostconsulting.co.uk