FSA encouraged by industry progress on soft and bundled commissions

It looks as if the Investment Management Association, supported by the London Investment Bankers’ Association and the National Association of Pension Funds, will meet the FSA’s end of year deadline to produce a market-based solution for disclosure of brokerage commissions and a timetable for implementation. If it does not, the regulator may require firms to rebate the value of commissions to their clients’ funds.The FSA has already concluded that fund managers should only be able to purchase execution and research services with commission and in a supplementary policy statement it has defined terms: “execution” services “are demonstrably linked to the arranging and conclusion of a specific transaction” and “arise between the point at which the fund manager makes an investment and the point at which the transaction is concluded.” They would take in booking and processing orders and advice that relates to active transaction management, for example, on programme trades, liquidity and negotiations of the terms of trade. The FSA says that it would not expect the term to extend to post-trade analytics that assess execution quality nor would it cover the cost of custody services.