The following is an excerpt from a Wall Street Journal article that mentions research conducted by Finance Professors Robert Battalio and Shane Corwin on stockbrokers. To read the entire article visit: Regulators Weigh Curbs on Trading Fees
A fee system that is a major source of revenue for exchanges and some high-frequency trading firms is coming under the heightened scrutiny of regulators concerned that market prices are being distorted, according to top Securities and Exchange Commission officials.
SEC officials, including some commissioners, are considering a trial program to curb fees and rebates they say can make trading overly complex and pose a conflict of interest for brokers handling trades on behalf of big investors such as mutual funds.
At issue are "maker-taker" fee plans, which pay firms that "make" orders happen—often high-frequency trading firms that specialize in trading strategies designed to capture payments. The plans charge firms that "take" trades—typically big investment firms looking to buy or sell a chunk of stock or hedge funds making bets on short-term price swings.
A recent study by finance professors Robert Battalio and Shane Corwin at the University of Notre Dame and Robert Jennings at Indiana University found stockbrokers appear to routinely route client orders to markets that provide the best payments. The study found that can saddle investors with worse results than if the brokers hadn't factored in the payments, and that such trades are "unlikely to be consistent with the broker's responsibility to obtain best execution" for investors.