The unbundling movement is well under way in London, where money managers and their brokers created commission-sharing arrangements, often called CSAs, in which the manager can use one broker for execution and pay a separate firm for research, either directly or through the first broker.
"CSAs are very popular in the U.K.," said David Easthope, an analyst at financial industry consulting firm Celent LLC, Boston. "I'm not sure they'll catch on like wildfire in the U.S. because there isn't a major need for them."
One reason CSAs might not be needed in the U.S. is because step-out agreements are a common method of paying research providers that do not handle execution. In these arrangements, which are allowed under SEC rules, the firm providing the research must provide some part of the execution, typically clearing or settling the trade.
Some industry observers, however, said step-outs are not as transparent as CSAs.
"Step-outs are an inelegant variant" of CSAs, said Robert Shapiro, senior vice president of the advanced trading strategies group at transaction cost analysis firm Abel Noser Corp., New York. "They're inelegant because they potentially create (information) leakage."
Because of the communication that needs to take place between the executing broker and the research provider, also known as the introducing broker, step-outs can provide opportunity for information about a trade to be leaked, creating potential conflicts of interest.
"From a transaction cost analysis perspective, (CSAs) are a much cleaner model," Mr. Shapiro said.
Last October, the SEC proposed new guidelines for the use of commission dollars, with commissioners specifically revising what services under Section 28(e) of the Securities Exchange Act of 1934, better known as the safe harbor clause, can be funded commission dollars.
The revised guidelines mention both step-out agreements and CSAs and as issued, would likely limit the growth and use of CSAs.
But commissioners, who are expected to issue their final revision sometime around September, are facing heavy pressure from the financial industry to ease the burden on money managers and brokers to create CSAs.