August 5, 2024.  Please note that this is an automated transcript of the above mentioned podcast; errors may exist. If you have any questions, please contact Castine.

Robin Hodgkins: Hello and welcome to this episode of Castine Conversations. My name is Robin Hodgkins, and I’m the President of Castine. In these episodes, we meet the business leaders and the businesses involved in commission management, compensation, and compliance as they’re used in both the investment manager and broker space worldwide.

My conversation today is with Jack Polina, the head of Commission Management at Virtu Financial. Jack has been an integral part of the soft dollar CSA and RPA world for over 30 years, and as such has a very unique view on its growth, changes and challenges. Jack is a great advocate for commission management and has been involved in all of the recent activity in the UK, the no action letter, and the upcoming changes in the EU.

Our conversation covers Jack’s start in retail, his very fortuitous move to Shearson Lehman, and his ongoing career at Virtu. We talk about the reintroduction of CSAs, also known as CSAL in the UK, and what it means for domestic UK firms as well as global players. I hope you enjoy the conversation.

Jack, thank you for joining me today for this Castine conversation.

Jack Polina: My pleasure. Looking forward to it.

Robin Hodgkins: So it’s interesting, you and I are both kind of veterans in the space, coming up on a big anniversary, I think, in 2024. And you’ve really been around in this space for quite a while. Was there something in your original studies or maybe in friends or family that got you into finance before we even talk about commission management?

Jack Polina: Sure. When I think back to it, I wasn’t even involved in anything to do with commission management or the brokerage side. Ironically, when I went to school, I studied technology and I wanted to be an IT person. At some point after school, I ended up actually opening up my own business. I opened up a retail business in food. I can make a pretty mean bagel. I owned a bagel store in Brooklyn, New York.

Robin Hodgkins: Excellent.

Jack Polina: And I did that for a number of years. Then a friend of mine called me one day and said, “There’s this opportunity at Shearson Lehman. Would you like to take a look?” And so I did. For a while I did both jobs. I worked during the day at Shearson Lehman in an IT job and then I worked at the bagel store at night.

While doing that, I was one of the few people who could actually go down to the trading desk and talk to a trader and get yelled at, because most of the really smart guys were programmers who didn’t have the same personality to go down and deal with a trader. So when I had another friend who actually worked in the soft dollar department, his boss got to know me from going down to the desk.

One day – it was another thing where I would volunteer my time on the desk and I would go down there and learn about the business after work. So it was funny because I think it was in their best interest because they were saving all their grunt work for me. At the time, everything was done manually. So I would be faxing invoices for approval to clients. I’d be entering them in the system, but I had a market data background from technology. My focus was around market data within the company.

So it was a natural transition. If you think back, Robin, there were no CSAs back at that time. Everybody paid for market data for the most part, and a little bit of research, but it was all Bloombergs and Reuters and all that stuff. So when a job one day opened up, they asked me if I wanted to work on the desk. I remember my boss saying, “You can have him as long as you give me a rec.”

So they got a requisition and next thing you know, I was on the desk as the junior guy. And I really took a liking to it. I learned a lot. We were very well integrated with the stock loan department, not because it was the same business, but because one manager ran both desks. So it gave me access to both. I learned about securities lending. I learned about the stock loan business. I learned about the agency trading business, and also the CSA business.

At the time it was interesting because we only covered institutions, you know, Fidelity and firms like that. There were no hedge fund clients back then. Ironically, when hedge funds were starting to grow, the firm didn’t even understand them. And so they were pushing them up to the retail desk, I remember. And the retail guys didn’t even want to deal with them. They didn’t trust them, they didn’t understand them, and it was frustrating working at Shearson Lehman.

So I actually ended up leaving. My real career started at Honig & Company. I followed a group of guys on the desk and this woman, Robin. And we went off to a firm, a little firm called Honig, which is one of the founding firms of soft dollars. It was a couple at the time, but actually if you look at the principal rules, which we may talk about later, Honig was one of the architects of the SEC disallowing principal trades for research. It was a no action letter they gave to Honig. This all happened before I got there, but Honig was a little small soft dollar broker that really focused on the client and on the regulatory side of it, and also wanted to cover hedge funds.

So for myself and a gentleman named Brett Fisher and a few others, it was a great opportunity to go there and really grow our business within a small firm where we could be impactful. So that’s how it all really got started. At the time, I never dreamed of doing this. I dreamed I was going to own a bagel store. I was actually studying acting on the side. I went to Lee Strasberg’s Acting School in Manhattan.

I did a bunch of different little things. I’m an immigrant from Italy. So a lot of what I’ve done, I’ve always just tried to figure it out as I went along, because you’re always at a disadvantage in some respects when you first start out in school. But it’s worked out really great.

What I like about commission management and why I think I stuck with it – because people say to me, I remember I had an HR person tell me once, “Oh, I wouldn’t hire you. You don’t seem to like change.” I said, “Well, first of all, we reinvent ourselves 50,000 times in this business. The rules constantly change. The clients change. It becomes a global market.”

But for me, what I love about CSAs and soft dollars and commission management in general is that, as you know, what we do all day is really try to solve problems for clients. Our job is to help clients and be consultative in our approach, and it’s always about understanding what the client’s needs are, what their pain points are, what they need to navigate from a regulatory standpoint. And then for us to go out there and really try to find a solution for them.

And that’s what makes it different every day. And that’s what makes it fun. And it’s rewarding because you really get the satisfaction of a customer saying, “Wow, thanks. You really helped us to navigate this or to do this properly.” So that’s why I think, you know, like you said, to age ourselves – 31 years in, I still love everything about it.

Robin Hodgkins: That’s great and it really seems like there’s a real split in career growth for people where some people just start in one career and kind of grow from there, and other people have this kind of almost like a mosaic view of their career where I’m sure some of the retail experience you had and the acting experience you had, and you know, being from having a global view of the world, being an immigrant, has really helped you. And obviously you’re a great communicator and advocate for this space. And I still can’t understand why an HR person said that you don’t like change because of all the people out there…

Jack Polina: He left four months later to find another job. So that just goes to show you there – certain individuals just chase the next paycheck, if you will. I’ve always worked with a guy at Shearson Lehman a long, long time ago, and he gave me some great career advice. There were two gentlemen. One said to me, “I could have left a thousand times,” and he said, “but I’ve watched people leave throughout my career. And at some point, whether it was six months or five years later, they found themselves looking for work because they thought they were chasing something that really wasn’t as great as they thought it was.”

His belief was, and I’ve lived by this: if you truly like what you do, be the best at it, or at least try to, and enjoy it. And it’ll survive forever. Then I worked for a gentleman also at Shearson Lehman and I give my staff the same advice. He always said to me, “Work harder than three out of five people, and you’ll always be employed.”

And it was great advice. And I think that’s from my dad, my upbringing too, you know, coming to this country and my dad always had to work harder than everybody else to make his way. And so you learn from that. And it’s something I try to teach some of the younger folks today.

Robin Hodgkins: Yeah, I think that’s kind of a theme with people I think that have been successful in the business where they not only had mentors or people that could help influence them or guide them and also maybe stop them from making big mistakes, and then also paying it forward to say, you know, as you’re doing here and with the people you work with, giving them advice and career guidance.

Jack Polina: Yep.

Robin Hodgkins: But speaking about the transition, you talked about Virtu, but of course there’s a step in between with Honig and ITG. And was that a natural transition on the commission management side as you were growing into larger and larger positions and opportunities?

Jack Polina: Yeah. So Honig was a small agency broker dealer that really focused on soft dollars. That was all we really did. My job at the time was to both find new customers for the firm as well as manage the CSA business. When I first got there, it was just me. They gave me another person to work with in the group. But we quickly grew within five years. The team became about nine individuals and we had almost 300 clients and we just started to grow really well.

Then what happened was ITG was founded on a product called POSIT, which is a crossing system. And it was a combination of Vara and Jefferies. Those two technologies came together and our CEO left. He was actually an ex-Goldman guy and ironically, he was originally a school teacher. And then came into Wall Street, and there was another gentleman who ended up founding ITG.

But that said, ITG wanted to be in the hedge fund space and we needed to evolve because the world was becoming electronified, if you will, versus high touch trading. And we didn’t have the capital to go out and compete. We tried it, but we didn’t succeed at it. So we needed to partner with somebody.

And ITG was a great fit because they did not have a hedge fund presence. But they had unbelievable trading technology, great product, great people, and they were global. And ironically, little old Honig had an office in Hong Kong, had an office in the UK. We were one of the first ever soft dollar brokers in Hong Kong as an example. And it was us and Instinet at the time, and then we had a decent little business in Europe. And so it was a nice combination.

But what ITG did for me was it now felt – it wasn’t as big as Shearson Lehman obviously, but it was a bigger firm. And over my career there, I ended up running our hedge fund sales team. I ended up running our EMS sales product. At one time we did a partnership with an order management system out of Canada, and I ended up running that product, the sales effort of that. I tried to help start an outsourced trading desk at the firm. So I’ve dabbled in a few different things within the firm.

Every now and then what would happen is – unfortunately, if you work really hard, sometimes the CEO looks and says, “Oh, you know what? I’m going to let Jack do it. He can do it because he’ll go out there and make it work,” right? So they would just do that. For me, it was always – I hate to use the term, but CSAs was my bread and butter.

And I also viewed it as, within the CSA space, you are there to help once again solve workflow problems for clients and it makes you a better salesman and it’s much easier to cross sell and introduce other products within that role because you’re not a salesperson. And so as the role evolved and then all of a sudden they said, “Okay, great. This is growing now. We don’t need you to focus on it anymore.” I always had the CSA business, and now that’s all I do.

Ever since when Virtu merged with ITG back in 2019 now, my sole focus has been really growing and increasing because one of the things that we started doing before that was aggregation. And that really takes on a lot more – it’s a different personnel commitment. It’s much more administrative. It’s a lot of work, and so it’s a lot more focus and you need a lot more time for aggregation from a regular soft dollar business or CSA business.

Robin Hodgkins: But you work on both the aggregation side and also on the direct side as well?

Jack Polina: Yeah, I manage the whole group and we tell our clients, “Look, we’re happy to be your…” Ultimately, full disclosure, Robin, I want to be a CSA broker. Because that’s, you know, from a revenue and from importance to my firm, we’re a trading firm, right? We’re an execution partner to our clients.

So being a direct CSA broker is important. I got involved in aggregation by accident, to be honest with you. In 2006, 2007, a client called me and said, “Hey, I want you to send… I want to trade. We’re going to put CSAs on your trades, and I want you to send it to XYZ aggregator.” And I said, “Okay, what is that?”

And they said, “Well, this is how it works. And by the way, you’ve got to give them,” I forgot what it was at the time, like 15 mils a share. The fees were high. I said, “Wait, what do you mean I have to give them 15 mils a share?” And they explained it prior. I go, “Hang on, I can do this.” And I said, “I’m an agency broker. I don’t sell research. We have the technology.” And he goes, “I have no problem with you doing it.”

And I remember my first call was to a gentleman, if you remember him, Mark Conforti at Credit Suisse. Oh, absolutely. I love Mark. Yes. So I called Mark and I explained it and he goes, “Well, how much are you going to charge me?” I said, “I don’t know. Five mils.” He goes, “Done.” He fell off his chair, right? I just saved him 10 bills. And that’s sort of how I got involved in aggregation.

And over time what we found was we always told our clients, “Look, if you have brokers that are difficult to deal with and you like our service, we’re happy to handle it for you. Your job is to go find best execution and we’ll do it.” And people always ask me, “Well, what’s the benefit of an aggregator?” And I tell them, really strictly, if you – I’m very honest when I talk to an asset manager – if you have two or three relationships and you can manage them, you don’t need me.

You don’t need an aggregator. An aggregator is meant to help you when you have too many things on your plate and you don’t have enough hands in which to do it. And if they can take away some of that administrative burden for you and help you with it, then an aggregator works. I always use the analogy when I, especially when I speak to the Europeans, because they don’t understand what a checking account is, but I say to them, “If you have a phone bill in front of you and you have five bank accounts, and you have to now go figure out where do I have enough money and go pay it or split it up, an aggregator helps you to consolidate all that and takes away all that stress and that headache for you.”

And also we took a very different approach as it related to fees. Yes, full disclosure, we charge broker fees like everybody else does, but we do it in a way just to cover our costs. Because I have 28 people in the group – that’s, you know, the firm is generous in the fact that they give us the capital to grow and build our business.

So for me, it’s always been more about adding value to the overall relationship. Twenty-five percent of our clients, we don’t even charge their brokers a fee because we have a different relationship with the client. So it’s different in that respect. And actually I was going to mention at the end, but I’m very grateful to the FCA that they basically put in a rule in Europe under this new payment option that doesn’t allow for brokers to pay fees to an aggregator. I feel that it is a service that the asset manager benefits from more so than the broker and let them pay for it. So it’s very good.

But that’s sort of how we got involved in aggregation and over the years it’s grown in that respect. Clients are like, “Oh, you can do this for me. Hey, you know, it would really be helpful if you can take this on.” And that’s sort of how it’s grown and it’s been great. We love doing it, but it’s time consuming. There’s a lot of work involved in it.

Robin Hodgkins: I think it’s also good that you can offer your clients the diversity of services and a huge staff to be able to address the different types of services.

We see that with firms we work with, where people want to do direct aggregation—sorry, direct CSAs—they want to do aggregation, they have other brokers, and they’re paying an aggregation fee too. So there are a lot of different permutations out there, and you’ve got a great offering that you can give people comfort with.

Jack Polina: I’m also a believer in custodial aggregation. I’m a believer in virtual, simply because the reality is that if you’re worried about counterparty risk, sometimes it’s better to keep it across multiple brokers, right? And you have a virtual aggregator, so I understand both sides of the argument.

It’s what works best for a customer. That’s why I love the RPA model, because the RPA model alleviates the counterparty risk—it puts it all at the asset manager’s name with the broker.

Robin Hodgkins: Yeah, absolutely. So let’s actually transition a little bit over to the FCA and what’s been happening there, because a lot has happened in the last couple of years with the end of the no-action letter, and then CP 24-7 and now CP 24-9.

Maybe you can talk a little bit about some of the things that have been released in the last few days, for the benefit of those people who aren’t aware of some of the advances that have been happening in England. This is very timely.

Jack Polina: I commend what the FCA did, and I actually wrote Gerard Breen a note saying I’m very pleased with your final rules and the fact that you listened to the consultation paper results and responses.

Where I disagree with them is their interpretation of an RPA, and we can talk a little bit about that. I also disagree with their decision not to take on the topic of corporate access and basically table it for future consultation papers. But as it relates to the paper itself and the rules themselves, I believe they are really fantastic.

Obviously, as a CSA broker, you’re happy it’s CSAs, but putting that aside, I think it’s really good for the capital markets. I think it’s good when you think about what the Treasury—the UK Treasury—was hoping to achieve and was asking the FCA to help them achieve. I think it’s no different when we look at individual countries like France and Germany and others within Europe, the European Union, and we’ll see where those final rules shake out.

But ultimately, it’s about helping the small issuers, as we call them. You know, the small little manufacturing firm that’s trying to get access to capital, and ultimately that capital helps them grow, helps them hire people, helps the economy. That’s what really the regulators’ intention was.

At the onset, I always say I don’t think the Treasury Department, as much as they want to help the capital markets, were really worried about how much more money the banks can make or how much the brokers can make. But this was a means to gain more access to research, gain larger investment pools to buy more research and so on.

The reality is when you’re buying everything through P&L, you’re going to buy research, but you’re not going to buy that “nice to have” research, if you will. And also with the minor non-monetary benefit rules around MiFID, it really disallowed you from finding all new research, new trials. Research firms love to send out a blast every day and say, “Here’s what we think,” and it might go out to 500 different asset managers, but only maybe 200 of them don’t do business with them. So now those 200 can’t open that email because of these non-monetary benefit rules.

So I think by them not only introducing a new payment mechanism, but by adjusting some of those rules around budgeting, around inducement rules, around—and I won’t call it cross-subsidization, but what is almost like cross-subsidization—how you can share research across different groups. All these different things that they asked folks to take on are doable.

That’s one of the things I wrote to the FCA, saying I don’t think you gave anybody any onerous task that they can’t take on that would prevent them from doing this. Obviously, there’s a client discussion that has to happen about who’s going to pay for the research. But I think if you have an intelligent conversation around what’s the real cost of research versus the total assets versus returns, and if you can show someone that by buying this other research, I’m going to make you an extra two basis points versus costing you a quarter of a basis point, the benefit outweighs the cost.

So I’m very positive on the new rules, and this is something I keep talking about. If you think back, Robin, when we were talking about the no-action letter expiring in the US, we had been going through that for about seven or eight months. I was on a number of SMA calls. I had calls with the SEC directly and with my legal group here. One of the things we noticed was the regulators weren’t willing to budge, and the asset manager community—and more so the banks—weren’t willing to budge either.

So it was more of “No, no, no, I don’t want to do that. I’m not going to bring in P&L in the US. I’m not going to register as an advisor. I’m not going to do all these different things.”

You don’t get that now with the new PS 24-9 rule. It’s more of “Wow, you know what, this might actually work. I have something now. The regulators made it easier for me to go talk to my clients. I have a leg to stand on, if you will.”

So I’m much more positive, and I think the asset manager community is much more positive about this rule change than they were when the no-action letter was expiring. And actually, in all fairness, I didn’t see a major impact from the no-action letter expiring. I think it actually just allowed folks to say, “Okay, I can no longer do this. Let me find a different way of dealing with it.”

So I’m very positive on the new rules.

Robin Hodgkins: Yeah, I certainly think that what you said about the P&L and the need to find the “nice to have” research—I think that problem has been solved. It’s certainly addressed the issue of the end of the no-action letter where people were now forced to find a solution for this. I also agree with you that the FCA has done a good job in finding the middle road and threading the needle on some of these rather delicate issues.

There are a couple of issues that I do want to get to later on as far as some differences in the UK and the US as far as some of the things that they allow. Maybe we can just touch on that right now. For example, there’s certainly been an issue with the FCA for years and years now about corporate access. Do you have any sense as to why they’re still saying, “We may touch on that, but we’re not going to do that now”?

Jack Polina: They need to take a really good look at it. When we were talking to folks and chatting with the FCA around the consultation paper, the topic of corporate access came up.

We feel—and I saw, ironically, BlackRock got singled out, but I think a lot of other asset managers were part of the same responses to the consultation paper—asking that the FCA consider corporate access because it’s roughly a $600 million market in the UK, and they need to consider it so that it aligns with the US and Canada and Asia, where I can have a workflow that’s the same globally.

I believe the response I received from the direct question I asked—and the response I received was that this particular consultation paper was all about a payment option and not about the type of what you can pay for now. I disagree to some degree because they talked about certain things in the rules that were outside of the payment mechanism and more about the type.

But that said, their response was, “We wanted to focus on the type of payment and not the research itself,” and that they will take it up in future consultation papers.

I believe strongly that the investment management community, who has a louder voice in some respects than the broker community, will continue to push the FCA to take a look at this again and to determine whether or not corporate access should be viewed as research.

I think they handled budgeting well. I think they handled the research policy well. They want a research policy—we’ve always preached that to our clients. Research provider disclosure is easy to do within tools like yours and ours. Cost allocation and disclosure is also very easy to do, and separately identifying research charges.

The one thing that they also did not comment on was things like VAT. I think that’s also not difficult to deal with. Any research provider that bills in the UK for a UK domicile manager will indicate the VAT amount and will indicate the GBP equivalent so you can do the reclaim. Obviously, it’s an additional cost because I don’t believe you can reclaim the full 20%, but you can reclaim, I think, around 13% of the VAT. So you get to reclaim a decent amount.

Then they touched on the point—because we’ve had, honestly, a couple of clients ask this—clients are confused and asking us, “Well, can I have an administrator for an RPA but not a CSA?” And we explain, “No, you can’t.”

What they didn’t do with the RPA model is they didn’t allow it to be in line with the CSA model operationally. You still have to do a two-week reconciliation. You don’t have to do that with a CSA because they allowed the CSA to look and feel like a global CSA.

So now as an asset manager, I have a decision to make: Do I want to take on more administrative burden within an RPA, or do I pivot to a CSA? But now with a CSA, I introduce counterparty risk that I don’t have in an RPA.

So there are all these little nuances, but operationally, I tell everybody they technically work the same. It’s just where the money sits. That’s something I wish the FCA would have done a better job of clarifying, but they made it seem as though the RPA was this completely different animal operationally, and it’s not.

Robin Hodgkins: Yeah, I totally agree. On the reporting side, when we were at the most recent Unbundling Uncovered conference, there was a lot of talk about the level of reporting that was going to come out of the FCA. It seems like that’s actually been moderated quite a bit. Can you maybe just summarize, for the benefit of those people listening, some of the positives that have come out of that?

Jack Polina: Yeah, absolutely. And I do want to make a correction. I saw something in one publication—I forget which one—but somebody spoke about benchmarking as if it had to be done, and I think that was a misquote. So I want to be clear, and I’ve been telling folks, you can benchmark, but it’s optional—it’s not a requirement. It was viewed for a while as possibly being a requirement, but that’s gone away.

When I talk to asset managers about budgeting, they say, “I’ve already been budgeting. This isn’t difficult.” The nice thing is they made it a lot less onerous. It doesn’t have to be at the strategy level if you don’t want it to be—you can do it at a firm level. And also, you don’t need investor approval in advance like you did before. But that was also a misconception because I remember you only needed approval the first time you did a budget, and subsequent years you just had to do notification.

But even still, here all you have to do is have a plan in place. It’s no different than in the US if you decide to have a budgeting research policy—pretty straightforward.

What I tell clients all the time is: indicate in your research policy what you’re going to do, how are you going to do it, what happens if I overfund my research wallet, what happens if all of a sudden I hire two new analysts and my research budget increases by 10%? All these different things come into play.

Research provider disclosure—I think that was a big deal that they softened that, because it’s difficult. Nobody wants to disclose who they’re buying their research from—confidentiality and unique sources. So having instead being able to say—and I think this is what the FCA was trying to get at—”I bought 40% of my research from bulge bracket firms, I bought 30% of my research from small mid-size broker dealers, and I bought another 30% from the independent research provider community.”

I think they want to try to know how much is going to the IRPs versus the rest of the world, because ultimately that’s one of the other things they wanted to help. They feel that if they have more IRPs doing research coverage, that’s going to help the small issuers. It’s not about Meta doing a secondary; it’s about helping some small issuer.

I do want to touch on one of the disadvantages, if you will, for US asset managers versus European asset managers. There are two things that you can do in Europe from the trading side that you can’t do in the US.

One is you can unbundle a trade in Europe. When I say unbundle a trade, I mean I can have a block order and I can determine that—we’ll use a 10,000 share order as an example—I can determine that 9,000 shares are going to be used to fund research, but 1,000 shares aren’t, simply because it’s from a strategy that’s already hit its budget and I don’t want it to fund research. So I can unbundle that trade and trade 9,000 shares with a CSA and have 1,000 shares go execution-only.

In the US, you can’t do that. You have to have the same average price, the same commission across the whole trade. So it makes it very difficult if you have a restricted account or something else where a certain portion of that trade shouldn’t be getting research funding.

The other thing is the type of trade, which is principal transactions in Europe. If you think about it, you have different models. If I’m a hedge fund, I might be trading swaps, I might be trading CFDs. If I’m any type of asset manager, I may be interacting with a systematic internalizer in Europe. Those, for many brokers—if not most—are considered principal transactions. No issue if I’m a UK asset manager or if I’m an EU asset manager.

But if I’m a US asset manager, there’s an old rule here in the US alongside Section 28(e) that doesn’t allow for principal transactions to fund research. The reason behind it historically has been because it’s a markup, and you can’t identify what’s for execution versus research. It doesn’t trade in the same way as a typical agency order does.

If you fast-forward the markets since 2001 and all subsequent rule changes that have come out of the SEC—when they allowed riskless principal transactions, as an example—if you look at any block order today where you have 10,000 shares and 9,000 executes agency and 1,000 executes principally, they both go to the market the same way. They both go to the quotes the same way, they both execute the same way, they both have a commission, they both have a DTC confirm or a trade confirm, they both go back to a clearing system. They look exactly the same.

There’s no markup on the 1,000 shares versus the 9,000 shares. It’s an agency/principal commission trade, and the SEC needs, in my opinion, to look at that more carefully and update some of the rules around principal trades. Because what’s happening too often is that the asset manager and the asset owner are not getting the full advantage of that research dollar that could help them buy more research and gain better alpha.

Robin Hodgkins: Excellent. But looking at how things are evolving in the EU, the UK, and the states, we’re still not seeing a one-size-fits-all approach. There are still going to be differences. The SEC’s going to have to look at principal trading; England’s got to take a look at corporate access. How do you think the large global buy-side firms are looking at things right now? Are they ready to jump in, or are they still waiting for additional changes?

Jack Polina: It’s a great point and a great question, and I think you’re right. If I’m a true global asset manager, I can have a global program if everything is being shared across all my clients globally. I still have to deal with corporate access to some degree, and I still have to deal with principal transactions from a US side.

So I think there’s still not necessarily ring-fencing that has to happen, but operational changes that have to happen in the sense that on the trading side, I can fund everywhere else but here with this model, but I can still share that research globally. But when it comes to corporate access, I have to obviously think about UK versus the rest of the world.

As it relates to asset managers who have potentially taken the approach of going P&L post-2019 when MiFID came out, I still think it’s honestly a little bit early to tell. But I do definitely hear of asset managers having discussions, and I know of a couple of asset managers who I understand are actively having discussions with their clients about going back to a CSA model.

I believe strongly that by the end of the year, we’ll see a few—a number of firms—start to set the plan for January to convert over in January. Because at this point, they already have their budgets, they’re already set. If they’re already committed to paying P&L, they might have paid for a majority of the research already.

But I do feel strongly that we’ll see a good handful of asset managers out there go to a CSA model in the UK by the end of the year. Then there are the other managers that have to wait and see what happens in Europe and when those rules come out. So I feel very good about 2025.

Robin Hodgkins: Yeah, we’re having a lot of conversations with brokers and asset managers about that same topic. Obviously, a lot of us hoped it was going to happen in 2024, but it’s more likely to be 2025, 2026, and I think by 2027, the pendulum will have swung quite far back.

Jack Polina: And I think you believe with me—one of the things I always try to stress to folks, I tell them, “Look, Robin and I and many others, we’re in the CSA business, right? But at the end of the day, I truly believe in my heart that CSAs offer transparency, are really good for the market, they really help to distinguish what is execution versus research, they really help to separate the cost.”

And equally, no desks that I know of—unless you have a hundred traders—can execute with 200 brokers or 100 brokers effectively and efficiently to say, “I’m going to go pay all these folks for research.” CSAs allow you to focus on your best execution brokers and still be able to procure research from hundreds of research providers because you have a mechanism that they’re able to be paid through.

So I personally think that it helps with alpha generation, with exposure to more research, and with transparency and management of costs. You don’t overpay for research when you’re using a CSA versus a bundled trade—what we call a real bundled trade, full bundle, so not what the FCA calls bundled, but a true bundled trade.

So I’m a big, big fan of the CSA model. It’s very efficient for our capital markets.

Robin Hodgkins: Yeah, I’m expecting by next year, the phrase “CSA” will be much more in play than other variations, like the way that CCCA has kind of faded away and it’s now the CSA here. I think it’ll be the same thing in the UK and Europe.

From the standpoint of the competitive nature between the US and the UK, do you think this is going to accomplish one of the key goals, which is to help the competitive aspect of the UK market versus the US?

Jack Polina: I think more the UK market versus Europe from a competitive standpoint. It’ll make it easier for global managers to have both the US and the UK, or Canadian and UK, or Hong Kong and UK offices.

But from capital markets and issuers and raising capital and helping the economy, I think it helps the UK compete more against the European Union, where they were potentially going to lose asset managers moving across the pond into France and Germany and other regions within Europe. So I think that’s where it becomes important.

Robin Hodgkins: Excellent. And any last words of wisdom or suggestions to people in the UK who are looking to make the switch back to the CSA-lite view of the world?

Jack Polina: Yeah, I think look at your cost. Look at your cost of research, look at the cost to your clients, and then look at the cost to your firm from a management perspective. In other words, I always tell folks, it’s one thing for a head of research to say, “Oh, how do I have a conversation with my clients about these research dollars?” But then there’s also a CFO on the other side looking at how much it’s costing you to operate your company.

And if by passing some of that cost on, it allows you to hire potentially three more analysts—not so much that it allows you to build a better office space, but it allows you to hire three more analysts or go to more meetings and so on—ultimately that helps the underlying client. That’s what you have to look at as an asset manager.

And then operationally, I know there’s this fear, and you and I both know it’s not—this isn’t brain surgery. This is easy to do. There already were CSAs in Europe. The problem is there are a lot of asset managers in Europe today where a lot of the folks sitting in those seats don’t know what a CSA is because they came on after MiFID, right?

So it’s educating them on how it works operationally, but they shouldn’t be worried about it. They shouldn’t be scared of it. It’s easy to do, it’s easy to manage, to track, to report on all the different things that the FCA is asking you to do. I’m going to simplify it—they’re easy to do, period. There’s nothing complicated here, and there are tools in place. Nothing has to be built that everybody can’t help with.

There are some things that maybe people want to look at differently around reports and things, but outside of that, those are easily done. And pick a good partner. Pick a partner that has your best interest at heart as an asset manager and isn’t afraid to tell you no when you can’t do something.

Robin Hodgkins: Thank you so much for this conversation. I really appreciate your time. It’s really a very timely conversation about what’s happening in the UK and what’s going to be happening soon in the EU. I totally agree with you—this is all super positive for the end asset owners. I think it’s going to be a huge advantage to them. Jack, thank you very much. I really appreciate it.

Jack Polina: Thank you, Robin. I appreciate it. Chat soon.

Robin Hodgkins: I’d like to thank Jack for spending time with us today. I’m very grateful. For more information on Virtu Financial, where Jack is the head of Commission Management, please visit their webpage at Virtu.com. That’s For more information on Castine, please visit castinellc.com. Thank you very much.