Does a commission recapture programme affect the quality of execution and can I measure it?
Commission recapture programmes are usually organized by a particular broker and in some cases more than one. If the manager executes only those trades with that broker that they would have chosen to do irrespective of the programme, then it will not impact execution performance. If however, in order to meet a “target” requested by a pension fund, a manager executes trades with the commission recapture broker that they would normally have given to another broker, then almost certainly this will result in higher transaction costs. A comparison of the transaction costs incurred by managers on trades completed within the programme will highlight over time the extra costs being incurred by the pension fund.
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