Commission sharing agreement explained

A Commission Sharing Agreement (CSA), or in the US named Client Commission Agreement (CCA), is a type of soft dollar arrangement that allows money managers to separately pay the executing broker for trade execution and ask that broker to allocate a portion of the commission directly to an independent research provider.[1] CSAs consist of a percentage of execution fees, that are directed to pay for research reports from sell-side banks. The form of a CSA can be as short as one page.[2] One of the disadvantages of CSAs is the counterparty risk, that the broker becomes as the cash is held on the broker's balance sheet [3] and not in a segregated client account. Moves included in MiFID II such as the creation of Research Payment Accounts (RPAs) aim to address this issue.

References

  1. Web site: IND-X Advisors | Home . February 29, 2012 .
  2. Web site: Example of a CSA . 2012-02-29 . https://web.archive.org/web/20150319073428/http://farinaandassociates.com/forms/client_commission_agreement.pdf# . 2015-03-19 . dead .
  3. http://www.insurancenewsnet.com/article.aspx?n=1&neID=20081201350.18_97f2006dbf6768a9 Are CCAs Safe? -- Growing Counterparty Risk Drives The Buy Side To Rethink Client Commission Agreements And Consolidating Broker Relationships