To Bundle or Not to Bundle? A Review of Soft Commissions and Research Unbundling
Financial Analysts Journal, 2021, 77(3): 69-92
56 Pages Posted: 10 Jun 2021 Last revised: 8 Nov 2022
Date Written: July 15, 2021
Brokerage houses historically have provided research and related services togeth-er with order execution without separate fees. This practice of research bundling through so-called soft commissions has triggered an intense and ongoing debate considering that research bundling leads to nontransparent pricing and, therefore, can induce agency conflicts. A new European regulation has banned the use of soft commissions by requiring fee separation for execution and research services. Against this backdrop, we provide a systematic review of the literature on soft commissions to build a profound basis for further regulatory discussions and to uncover future research opportunities.
Keywords: Soft commissions, Soft dollars, Research bundling, Research unbundling, Trading costs, Brokerage industry
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