Instinet Canada Limited, the Canadian agency brokerage subsidiary of Instinet Incorporated, a global leader in electronic trading and agency-only brokerage services, today announced the introduction of BrokerShare. BrokerShare is a commission sharing arrangement (CSA) program that allows clients to “unbundle” their research costs from execution fees and therefore set explicit costs for both services, a process which the securities industry has long identified as a critical component of a fund’s “best execution” objectives. BrokerShare, which is available to Canadian institutional clients immediately, becomes one of the first programs of this nature in Canada.
“With the dramatic increase over the past 18 months in the number alternative trading systems in Canada, it’s understandable that the conversation around ‘best execution’ has focused primarily on a buyside firm’s ability to trade on these new venues. However, as significant as these new ATS platforms have become, the unbundling of research from execution should have as profound, if not more, impact on a fund’s execution cost savings,” said Thomas Young, Head of Trading at Instinet Canada.
Added Maureen Shankar, Director of Commission Management Services at Instinet, LLC, which is Instinet Canada’s U.S. affiliate: “Instinet was a pioneer of the CSA model in the United States, and we intend to leverage that experience as Instinet expands the program to Canada, which should enable Instinet Canada’s clients to provide their managed accounts with more visibility into their transaction costs.”
Under the program, institutional clients accrue trading commission credits in a BrokerShare account by utilizing Instinet’s global trade execution services, and later direct Instinet Canada to pay participating research brokers whose research the institution has consumed. Instinet Canada then handles all payments (which are variable based on the client’s discretion), administration and record-keeping through an online commission management system. This differs from the traditional commission model in which institutions pay a single “bundled” commission rate for a suite of services, including research and execution, but do so without the designation of an explicit cost for each service. By using a CSA program, clients can select a broker based on its execution quality performance rather than on research payment commitments.
“Buy-side traders in Canada are increasingly demanding the ability to control the execution of their own equity orders. These traders are beginning to manage their trading activity with an eye towards achieving best execution practices, and as they do, they will increasingly unbundle superior execution services from research content. CSAs allow them to achieve the best of both worlds – they can concentrate their order flow and commission dollars with sell-side firms that provide best execution capabilities while paying others for alpha-generating research ideas,” commented Laurie Berke, senior consultant, TABB Group.
One of the first CSA programs when introduced by Instinet in 2003, BrokerShare has grown steadily since its introduction, to include over 300 participants in the U.S. and total over $30 million (USD) in 2007 payouts.
