UK asset manager Martin Currie is putting in place commission-sharing arrangements (CSAs) with brokers globally, as it seeks to achieve best execution and inject more transparency into its use of client commission.
As part of this, the trading desk in Asia – set up in Singapore last year – plans to put CSA arrangements in place with all 13 of its execution brokers. As a result the brokers will eventually be able to disperse part of the commission that Martin Currie puts into its CSA accounts to pay for the firm’s research providers.
“Unbundling commission payment for execution from research allows traders the freedom to choose with which brokers and at which off-exchange venues we want to trade,” says Steve McCole, equity dealer at Martin Currie in Singapore*. CSAs also allow them to pay research houses that their portfolio managers use, he adds.
The firm has more than half of its $8.8 billion in assets invested in Asian equities and trades 11 markets in the region. McCole highlights the benefits of trading locally.
“Being able to manage orders in the region along with getting live information through indications of interest [IOIs] from brokers, combined with the use of lit and dark pools, have translated into a reduction of transaction costs for us,” he says. “The use of live IOIs has helped us find natural blocks of liquidity.”
IOIs are pre-trade messages sent by brokers to their clients alerting them to opportunities to trade privately negotiated blocks.
McCole and his fellow traders in Edinburgh have done a study to quantify such cost savings, using a basket of illiquid Asian names where the buy or sell quantity for each stock exceeds its average daily volume traded on the exchange.
They found the total cost for trading the basket in Asia was reduced significantly, for the same basket traded outside the region over the past five years. McCole declined to reveal the actual basis-point saving.
*The full interview with Steven McCole will appear in the December issue of AsianInvestor.