HOBART CAPITAL MARKETS LLP
Commission Sharing Arrangements (CSAs)/ Client Commission Agreements (CCAs)

Summary
Hobart, an independently owned ‘Execution-only’ house, is an ideal counterparty for your CSAs or CCAs. With a robust infrastructure, secure IT capability and non-conflicted provision of service, CSA order flow can be directed to Hobart’s equity trading desk, in the full confidence that administrative arrangements are in place; commission allocations can be decided upon later; and without the concern as to the reliability of our competitors’ ‘Chinese Walls’.

Moreover, employing Hobart as a trusted CSA counterparty also ensures your client’s ‘commission credits’ are then directed onwards, with total confidentiality and without the risk of information leakage.

Commission Transparency
Financial regulators and industry trade-bodies around the world are implementing guidance and/or rules regarding ‘Commission unbundling’*. This addresses the type of ‘advisory’, ‘execution’ and ‘research’ services that investment managers can pay for, with the ‘non-execution’ component of their clients’ commissions.

In the UK, this includes FSA CP 176, PS 05/9 and 'Conflicts of interest between asset managers and their customers: Identifying and mitigating the risks', as well as the Investment Management Association’s ‘Use of Dealing Commissions’ guidelines. In the US, it includes SEC Rule 28 (e) and US ERISA reporting requirements, and in Europe MiFID II ‘Best Execution’ guidelines.

The industry-lead approach to ‘Commission unbundling’ has been the introduction of ‘Commission Sharing Arrangements’ (“CSAs”) in the UK, Scandinavia, Europe, Asia and Australasia, and ‘Client Commission Agreements’ (“CCAs”) in the North and Latin America**. This is the most profound structural change to impact equity markets globally for many years.

*Commission unbundling – The designation of the ‘execution’ and the ‘non-execution’ component of a brokerage commission.
**CSAs and CCAs are broadly similar in purpose, structure and nature.

News and Recent Regulatory Updates
10/07/14 - UK's FCA publishes review of how firms use dealing commissions and Discussion Paper DP 14/3: Discussion Paper DP 14/3
08/05/14 - UK FCA publish final rules on use of Dealing Commissions: PS14/7 - Changes to the use of dealing commission rules
25/11/13 - UK FCA publish consultation paper CP13/17 on Use of Dealing Commissions: CP13-17 - Use of dealing commission
21/11/13 - Hobart partner with Markit to offer CSA execution capability: Hobart Markit Announcement 21st November 2013

Our Approach
Hobart recognise clients will have differing approaches to CSAs. Hobart is able to accommodate this by providing a complete end-to-end global solution that enables investment houses to track commission flows; address regulatory or other reporting requirements; and administer CSAs, alongside their existing soft dollar arrangements and commission recapture programmes. We work with the industry’s leading CSA/CCA platform providers; a number of multi-broker platforms and the sectors’ leading independent consultants.

Where a client with an existing CSA structure appoints Hobart as a CSA counterparty, Hobart has the flexibility to work with the client’s existing provider(s).

Where a client has no CSA provisions, Hobart is able to assist in identifying an appropriate approach to ‘Commission Management’, including the provision of in-house systems, if necessary.

Why use CSAs/CCAs
  • Complies with Regulatory requirements, where applicable;
  • Assists in Regulatory/Operational Risk Mitigation;
  • Addresses demand for greater commission transparency;
  • Removes need to execute through research provider;
  • Empowers trading desks to focus on ‘Best Execution’;
  • Evidences ‘Value for Money’ in the use of clients’ commissions;
  • Empowers trading desks to deal with broker of choice;
  • Allows IMs to revamp research procurement procedures;
  • Enables access to diverse range of Independent Research Providers (“IRPs”);
  • Assists with Alpha generation;
  • Makes it easy to implement research budgeting globally;
  • Enables IMs to track commission flows/balances securely online; and
  • Flexible ‘business model’.
Why Use Hobart as a CSA Counterparty
  • Independent;
  • Execution-only, not conflicted;
  • No ‘in-house’ proprietary trading;
  • Confidentiality/trade anonymity;
  • Flexibility in working alongside client’s existing CSA provider;
  • Neutrality in provision of CSA structure/platform;
  • Capable of executing any order from client's trading desk;
  • Hands-on management of client orders, from inception to completion;
  • Ability to hedge FX exposure on a CSA trade-by-trade basis;
  • Below the radar access to IRPs;
  • No risk of information leakage; and
  • Confers optionality.

For more information please contact us at: csa@hobartcapital.com



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