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To Bundle or Unbundle? A Look at CSAs, RPAs and MiFID II 

March 31, 2016

Sean Steinmetz and Andrew Ezekiel, Bloomberg Tradebook

The European Commission’s (EC) draft of MiFID II delegated acts, which was leaked in December, caused a stir regarding the use of commission sharing arrangements (CSAs) in paying for research going forward. While the final drafts are not expected to be released until later this year and each individual national regulator will still need to make its own interpretation, the leaked document prompted industry speculation that CSAs may be allowed to coexist with research payment accounts (RPAs) in a post MiFID II environment.

Regulators are seeking greater transparency throughout the trading process, part of which will entail separating the costs of trading activity from research spend. The concept of unbundling is now very much on the table. However, it is important to understand the distinction between CSAs, RPAs and how bundling vs. unbundling works in practice.

A CSA breaks down the commission a buy-side firm directs to its brokers into a distinct execution component and a distinct research (CSA) component. This allows a buy-side firm to use the CSAs accrued with its brokers to pay for research from a provider of choice, including independent research houses. Prior to CSAs, any particular piece of research did not necessarily have an absolute price. For example, if commission rates remained unchanged, but a firm traded 50 percent more this year than last year, essentially they would pay 50 percent more for the same research service. Read more

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