It has been reported that the US Securities and Exchange Commission is deciding on whether it will require all brokers to disclose information that would reveal where their stock trades were sent. This requirement, said Bloomberg, could reportedly address complaints that the trading decisions that were made are sometimes done against the best interests of the client.
The news agency explained that brokers at most times can capture a rebate or pay a fee to an exchange depending on which order type they used, while dark pools or private venues charge lower fees but are not required to share information on how they will treat their customers.
Three unidentified people who are familiar with the matter said that the proposed requirement could provide investors insight on whether they are paying or selling their money's worth. It is to note that brokers are entrusted with orders in the US stock market, and have the power to choose from various exchanges and private venues to sell or buy. Some money managers like T Rowe Price Group Inc purportedly disclosed to regulators the practice of exchanges offering incentives to attract volumes of orders, which could put the financial interest of a broker at odds with his clients', Bloomberg said.
Head of US equity trading Andy Brooks at Baltimore-based T. Rowe Price said that the measurement could actually help investors save themselves from predatory-type traders as described by Michael Lewis in his new book "Flash Boys."
The decision was reportedly influenced by the claims made by Lewis' new book. The book had already claimed that high-frequency traders hurt investors by knowing in advance which shares investors are planning to buy, and purchase the stock to resell them back to the latter at higher prices. The sources have said that SEC has is looking at how stocks are being traded in every aspect, and regulators are attempting to pinpoint certain loopholes that they can implement changes quickly.
In an interview, SEC Commissioner Kara M Stein said, "We've actually started this conversation about what can we do right now. All five commissioners are very focused on these issues and are committed to making sure the market is fair and efficient and promoting capital formation."
Although Stein refused to discuss specific measures the regulator is mulling over, she said that there are too many that needs to be addressed. Commissioner Luis Aguilar, on the other hand, had said in a separate interview that the SEC commissioners are expecting its staff to present potential policy options to implement in the near term.
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