Mostly… fixed income and cross product eTrading

November 6, 2006

U.K. Soft-Dollar Rule Would Ban OMS Payments

Filed under: etrading, Mifid, OMS / EMS — holky @ 3:13 pm

(from Securities industry news) … A proposal by the U.K. Financial Services Authority to ban soft-dollar compensation of asset managers for the use of order management systems (OMS) and execution management systems (EMS) is running into sharp criticism. 

The FSA by including these systems along with electronic networks, dedicated phone lines and word processing software among “non-permitted services” in proposed guidance that is open for public comment until Dec 6, is diverging from a Securities and Exchange Commission rule issued in July that put front-office OMS and EMS in the “safe harbor” for soft dollars. 

However, because OMS can be classified as mixed-use–for purposes other than helping to execute a trade, such as analytics and compliance–the SEC did say that only the costs related to trade execution are permitted.

It is unclear why the FSA did not take the same approach or differentiate between electronic systems that benefit broker-dealers versus those that benefit fund managers.  Last year, when the FSA first issued its guidance, it did not explicitly exclude OMS and EMS from soft-dollar eligibility.

So an EMS that acts as a pure aggregator for price discovery and execution +/- value-add algos — hence something specifically “helping to execute a trade” — but which did nothing else, would still be ok in the eyes of the regulators. 

Also found a ppt with expanded detail on the tests and checks here

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