14 December 2017
John Cant

John Cant

John Cant - MPI Europe Ltd

41Posts 192,113Views 21Comments
Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.
A post relating to this item from Finextra:

Cogent Consulting to sell majority stake to broker consortium

20 May 2009  |  2608 views  |  0
Cogent Consulting of Summit, NJ, a leading developer of commission management systems for the securities industry, has signed a non-binding letter of intent for the sale of a majority of the company t...

Brokers move to form industry standard CSA platform

20 May 2009  |  8532 views  |  1

The announcement overnight that Cogent Consulting LLC, leading developer of commission management systems for the securities industry, has signed a letter of intent for the sale of a majority of the company to a group of major global institutional broker-dealers, is the strongest signal yet that brokers have taken up the challenge to create an independent, industry standard platform for processing commission sharing agreements.

The demise of Lehman Brothers in September last year was a wake-up call to asset managers and other investors that the single-broker aggregator model for managing commission sharing agreements (CSAs) has its flaws. CSAs and the US equivalent CCAs enable money managers to accumulate credits from trading that can then be allocated to service providers for the payment of certain research or brokerage/execution services that they value. Reliance on a single equity broker to manage all these research commission funds leads to significant counterparty and operational risks, particularly in the current volatile financial markets. This realisation has put a number of alternative models in the spotlight of which an independent, industry standard aggregator based on technology such as Cogent’s CSA Trak is the front runner. This model will enable multiple broker-dealers and money managers to efficiently manage commission sharing arrangements (CSAs) and client commission arrangements (CCAs), through a single online portal that shows all balances and activities both by broker-dealer and virtually aggregated. As Robin Hodgkins, President & CEO Cogent says in the press release "The objective of this transaction is to have a widely used industry platform that will make it easier and cost-effective for broker-dealers to offer CSAs and CCAs and for money managers to take advantage of them".

With none of the broker-dealers individually acquiring a controlling interest in Cogent, and the current successful management remaining in place, market participants can now connect to a single platform with a single interface to manage their CSA requirements across all their counterparts, rather than use a patchwork of systems. From our experience over recent years working with Cogent (MPI Europe are European implementation partners for all Cogent’s products including CSA Trak) we have found their technology to be the most robust, flexible, easy to use, and cost-efficient solution. Also the platform is tried and tested with a growing number of broker and asset management firms using it over the last two years - proving that Cogent understands the needs of institutional brokers and investment managers. Hence I see this announcement as a very positive sign for the market, allowing firms to overcome issues around CSAs/CCAs stemming from recent market shocks.

TagsWholesale banking

Comments: (2)

A Finextra member
A Finextra member | 22 May, 2009, 14:33

Could you explain more about how this centralised utility helps manage counterparty/credit risk? I understand the reduced operational risk through using a single system and single interface, but it is less clear on the counterparty risk side?

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John Cant
John Cant - MPI Europe Ltd - London | 22 May, 2009, 15:50

From a business perspective one key way that money managers seek to mitigate their counterparty risk in the research commission pools held by brokers is to spread their CSA trading across multiple brokers. However, without a central utility this often means implementing multiple IT interfaces, different reconciliation processes and learning how to operate different systems - potentially one new system per broker. Thus for many buy-side firms, their choice of number of CSA brokers to deal with can be limited by infrastructure, IT or operational issues rather than what should be the key counterparty/credit risk driver. Hence they may run higher risks than they would otherwise want to. With a central utility solution, this changes as there will be a single interface, single reconciliation process and single system to learn and operate (the same characteristics that also reduce operational risk as you mentioned), whether you have two or twenty brokers. This allows fund managers to adopt the number and mix of brokers in line with their business drivers and counterparty risk appetite, as it should be, without IT and infrastructure constraints. So having a centralised utility solution will help address these buy side counterparty/credit risk concerns.

 

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job title Managing Director
location London
member since 2007
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I lead MPI Europe a niche financial sector consulting firm focussing on regulatory driven, risk, technology and operational change

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