The Swedish
Model
Hans Lindh, head of trading at Swedbank Robur
The Swedish model offers the prospect
of complete unbundling between
commission payments for research
and execution. Champions of the new
model believe that it offers the only
means to achieve true best execution.
Hans Lindh, head of trading at
Swedbank Robur, played a key role in
the development of the new model.
“When I began work on
this area back in 2007, we
quickly realised that the
old bundled model wasn’t
benefiting the end consumer,”
Lindh told the Buy-side
Perspectives. “We realised
we had to do something to
reach best execution. I wasn’t
happy having the payment
for research linked to the
execution of the trade.”
Lindh has been in the industry since
1985, when he was part of the equities
team. In the late 2000s, Lindh began to
lobby within the firm for the adoption
of CSAs. However, at the time it was
something the firm did not want to do.
The breakthrough came in 2014 when
Swedish regulator Finans Inspektionen
(“FI”) released a letter to asset
managers that stated that research and
execution payments must be separated.
Lindh and a few others in the industry
started to question the CSA model. It
seemed to have limitations – why create
a limited number of accounts and then
grow them? Might this not undermine
best execution?
Instead, Lindh began work on an
alternative that would avoid linking
execution with research payments
completely. The idea was that
whether a buy-side firm traded with
one or a thousand counterparties, it
would not affect the research costs
in any way. “It was a huge relief”,
he said. Under the new model,
Swedbank Robur sets aside a
fraction of a basis point every day
and transfers the total every quarter
to an RPA, which pays the firms the
portfolio manager finds useful.
“We didn’t have to hire any people,”
added Lindh.
“Taking the CSA route
would have been more of a
burden due to reconciliation
and things like currency
trades and run-offs, which
we don’t have to worry
about. CSAs would require
surplus money on the
account, which is less
efficient.”
In terms of best execution Lindh
is directly involved in reviewing
reports and signing them, checking
outlier trades and picking up on any
unusual performance. His role today
covers FX and fixed income as well
as equities – but it is fixed income
that is the most difficult asset class
in which to demonstrate TCA due
to the huge range of products, the
lower liquidity per instrument and
the complexity of the market.
In line with this focus on efficiency,
Lindh reports that one of the impacts
of this new model has been to shift
more flow to electronic channels,
and to increase the use of TCA. The
flip side is that the firm has made
less use of research-only firms than
expected, and particularly less
maintenance research – a factor
that Lindh believes does improve
the quality of the research being
consumed compared to some of the
material produced in the past.
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