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Keefe Joins Unbundling Push

Wall Street firms are cleaving trading from research.

Updated from 12:22 p.m.

The push to make Wall Street firms charge separately for research reports and executing trades continues to inch along.

Keefe Bruyette & Woods

says it's allowing big institutional customers to pay separately for stock research and trading commissions. The investment banking boutique disclosed the so-called unbundling arrangement in the registration statement for its planned IPO.

The New York-based firm says it is "a party to several of these unbundling arrangements, and may enter into additional unbundling arrangements in the future." Keefe Bruyette says it made the disclosure in this past spring's IPO filing as well as in a recent update. It did not disclose the institutions it has entered into unbundling pacts with.

The push toward unbundling research fees from trading commission has been driven by some in the mutual fund industry, in particular


, the nation's largest mutual fund family. To date, Fidelity is the only mutual fund company to publicly acknowledge it has asked Wall Street firms to unbundle research from trading commissions.

But a number of other fund families have believed to have done the same.

Some big institutional investors favor unbundling as a potential cost-cutting move. Wall Street firms traditionally have forced big customers to pay a single fee for both executing trades and buying research -- even if the customer didn't want the research.

Wall Street has been reticent about acknowledging these unbundling arrangements. To date, the firms that have disclosed entering into unbundling arrangements with their customers include

Lehman Brothers



Deutsche Bank

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It's still too soon to say how widespread unbundling will become on Wall Street, but it has the potential to cut into the revenue of investment firms. Small investment firms could be particularly vulnerable to the unbundling trend, because institutional investors may be unwilling to pay separately for their research reports.

"If unbundling becomes prevalent, our sales and trading customers may not pay us separately for our research, and if they do, our revenues from these customers may not be the same as they are currently," says Keefe Bruyette in its latest initial public offering registration statement. "If our customers wish to purchase sales and trading and research services separately, we may not be able to market our services on that basis as effectively as our competitors."

Cowen, the former investment banking arm of

Societe Generale

, included similar cautionary language about the threat posed by unbundling in its IPO registration filing. Cowen, which went public, has been one of the year's more

disappointing IPOs. The stock priced at $16, below the anticipated range of $19 to $21 a share. The stock currently is trading around $15.94 after earlier trading as low as $13.40.

But not everyone on Wall Street sees unbundling as necessarily leading to lower revenue.

Earlier this year,

reported that

Lehman Brothers' unbundling arrangement with Fidelity was paying dividends in terms of higher trading volume with the mutual fund giant. The flat $7 million research fee Lehman negotiated with Fidelity apparently encouraged the fund family to direct more of its trades to Lehman.

Of all the firms that have acknowledged entering into an unbundling pact, Lehman is the only to disclose specific details about its arrangement with Fidelity. It's not clear whether the other firms have had found the arrangement as beneficial as Lehman.