Agency Trading Explained

Identifying and mitigating conflicts of interest is a fundamental ongoing regulatory obligation of asset managers and asset owners, for themselves and on behalf of the clients for whom they manage assets. In this article, Gerard Walsh, Northern Trust’s Global Head of Client Solutions, Banking & Markets considers agency trading in the context of conflicts of interest.

One of the objective requirements of the modern asset manager is to identify and mitigate conflicts of interest in the work they do. Of course, “the work they do” is to invest wisely and deliver a return to their underlying clients. The requirement to avoid or mitigate conflicts of interest is codified in various rules and regulations in force in different jurisdictions and the need to avoid conflicts of interest often applies to activities at every level of operation. That means there can be a ‘look-through’ duty of care with respect to conflicts too. Investment firms need to mitigate conflicts of interest on behalf of their underlying investors, who are not able to manage and mitigate such risks themselves.