THE STORY OF CAPIS: PIONEERS IN COMMISSION MANAGEMENT
Capital Institutional Services, Inc. (CAPIS) was founded by Don Potts in 1977. Born out of the deregulation of brokerage commissions in the mid 1970s, CAPIS was a pioneer in creating the unbundled independent research model.
Don's vision was to create an alternative to the traditional bundled research model. He believed that independent, third-party research provided more value than bundled, proprietary research and was ultimately better for investors. Through this transparent model, managers and their clients knew exactly what they were paying for.
As managers learned of the ability to receive independent research through client commissions, CAPIS's business began to grow and additional asset classes were added to CAPIS's offering. In 1982, our bond desk was opened in New York. We were one of the first brokers to offer research credit on fixed income trades. And in 1998, CAPIS opened an international trading desk in London.
Over the years, our business model has faced many regulatory challenges. And with each challenge, CAPIS's model of providing independent research with client commissions has proven to be a completely transparent practice that benefits investors.
Today, CAPIS remains one of the few independent agency brokers. As a legacy to Don's vision over 30 years ago, his daughter, Kristi Wetherington, President and CEO, continues to guide the firm based on the principals upon which it was founded.
While a contrarian idea at the time, Don's determination and entrepreneurial spirit enabled him to start and grow his firm, compete against the Wall Street brokerages, and create a successful family business that continues to prosper today.
TIMELINE
1975
Congress passes legislation unfixing commission rates. As a result, Section 28(e) of the Securities Exchange Act of 1934 was amended to provide a safe harbor for investment managers to use client commissions for research and brokerage services under certain conditions.
1976
SEC issues an interpretive release on Section 28(e). This release stated that products and services that were readily available to the general public on a commercial basis were not covered by the safe harbor of 28(e). These items included, but were not limited to, newspapers, periodicals, computer equipment and software, office equipment, office furniture and business supplies. Additionally, the Commission recognized the value of third-party research and asserted that under certain circumstances, commissions could be used to pay for third-party research.
1977
Don Potts founds Capital Institutional Services, Inc. (CAPIS). CAPIS begins offering client commission arrangements (CCAs), also known as soft dollars, and commission sharing arrangements (CSAs) to provide valuable third-party research to investment managers.
1980
CAPIS starts an equity trading desk to offer clients better execution and service.
1982
CAPIS starts a fixed income trading desk. We were one of the first brokerage firms to offer research credit on agency fixed income trades.
1985
CAPIS becomes a member of the New York Stock Exchange.
1986
The SEC issues an interpretive release that withdrew the 1976 release. In this release, any product or service that conformed to the definition of brokerage and research services and provided lawful and appropriate assistance in the investment decision making process was protected by the safe harbor of 28(e) regardless of whether the product or service was readily and customarily made available to the general public. The 1986 release also emphasized the importance of disclosure of client commission practices and the investment manager's responsibility to obtain best execution. Additionally, the concept of mixed-use was introduced.
The Department of Labor releases a Statement on Policies Concerning Fiduciary Responsibilities Involving the Receipt of Research and Directed Commission Arrangements. This release provided that a fiduciary (plan sponsor) has an ongoing duty to monitor a manager's performance including the use of brokerage commissions and best execution.
1994
SEC releases rule amendments regarding investment companies' disclosure of products or services received in directed business arrangements. Additionally, the amendments required that an investment company disclose the average commission paid in relation to execution transactions.
1998
CAPIS builds a proprietary order management system; one of the first sell side OMS's to be built around the FIX protocol.
Our international trading desk is established offering 24-hour global trading.
2001
Kristi Wetherington becomes President of CAPIS. Kristi, Don's daughter, officially took over the reins of CAPIS. Don's legacy and the principals that CAPIS was founded upon were passed to Kristi.
CAPIS's transition management desk is established.
2003
CAPIS's program trading desk is established.
The CAPIS Independent Research Network (CIRN) is established offering a hand-selected network of the industry's leading independent research providers.
2006
Kristi Wetherington is named CEO of CAPIS further solidifying CAPIS's desire to remain independent while operating a successful family business.
The SEC releases guidance on client commission practices under Section 28(e). This guidance provided further detail on products and services eligible under the safe harbor of 28(e). Additionally, the release made it easier for investment managers to functionally separate execution and research services by introducing the concept of client commission arrangements. The SEC officially replaced the term “soft dollars” with client commission arrangement (CCA).
