Investors Challenge Proposed Regulation of CSAs

Convergex and Westminster Research Associates have released the results of their CSA & Research Usage Survey, exploring how financial industry participants use research in their investment decisions, and gauging industry sentiment about proposed regulations regarding the acquisition and use of research.

The survey results reveal an investment community that obtains a broad spectrum of research from a variety of sources, believes that commission sharing arrangements (CSAs) add to transparency and improve execution, and are skeptical that greater regulation can improve the current process. The survey was conducted from May 6 to May 8, 2015, and addressed the research and regulatory regimes of both North America (United States and Canada) and Europe.

Investors report finding great value in commission sharing arrangements, with a large majority of respondents saying that CSAs provide more transparency (65%) than bundled proprietary research, and that CSAs help in achieving best execution (58%). Buyside respondents identified a variety of research types that they incorporate into their in-house process, led by independent research (90%), traditional sell-side research (85%) and industry data and access to analysts (65% each). All told, eight separate categories of research received a vote from at least forty-two (42%) of buyside survey respondents.


Despite the broad usage and recognition of value in research, two-thirds (67%) of buyside respondents said they would use less research if they were required to pay cash to obtain the information, an arrangement currently under consideration in Europe as the European Commission (EC), through the European Securities and Markets Authority (ESMA), works to finalize the pan-European regulations of MiFID II.

An overwhelming 88% say that investment managers and their staff are best placed to determine how research is sourced and paid for, with just 4% identifying regulators as best-placed. Eighty-eight percent (88%) of Europe-based respondents and ninety-three percent (93%) of North America-based respondents say that regulations regarding the use of CSAs should remain the same, or be reduced, in their home territory. Forty-three percent (43%) in Europe said they would like to see less regulation than at current levels, versus thirty-one percent (31%) in North America.

“Our respondents clearly recognize that good research and best execution often come from separate places, and that CSAs provide the flexibility to access the best of both worlds,” said Tim O’Halloran, co- president of Westminster. “Investors say that research, paid for through CSAs, better informs their

decisions, provides appropriate transparency, and aids in best execution. Yet, if regulations are put in place that force them to use cash, they resoundingly say they will use less research.”