Asia-Pacific fund managers should start using commission sharing agreements more frequently to achieve the best deals for their customers, according to research firm Celent.
"The Asian markets stand to benefit from the use of CSAs because they are expected to increase transparency and reduce the conflict of interest that exists when an asset manager pays commission to a broker that is engaged in both execution and research," says Anshuman Jaswal, Celent's senior analyst and author of a report issued on Friday.
The report is entitled: "Commission Sharing Agreements in Asia: The Right Idea at the Right Time?"
Historically, CSAs haven't been used in Asia partly because there are no clear regulatory guidelines in markets such as Taiwan, Singapore, India and Korea. However, the emergence of broker-dealers that provide execution-only services has allowed the industry to migrate towards unbundling of payments for research and trade execution services.
"By using CSAs, the buy-side can ensure that it incentivizes both execution and research adequately," says Jaswal. "Independent research firms benefit from this scenario and can sustain themselves in spite of not being execution providers."