A top executive for retail broker TD Ameritrade Holding Corp. told a Senate panel Tuesday that the firm routinely sends customer orders to trading venues that provide the brokerage with the highest payments.
The comments by TD Ameritrade Vice President Steven Quirk sparked questions from the Senate panel about whether the firm focuses more on reaping income than executing buy and sell orders that are in the best interest of its clients. Critics say brokers that regularly send orders to trading outlets offering the best payments can miss out on better trading opportunities elsewhere, including more favorable prices for investors.
University of Notre Dame finance professor Robert Battalio, who testified before the subcommittee, earlier this year co-published a paper arguing that retail brokers such as TD Ameritrade often route client orders in ways that boost payments they receive, potentially harming clients.
Mr. Battalio, referring to his study, said such routing decisions typically send client orders to exchanges that have long waiting times relative to other exchanges, because other traders are also vying to get the payments. If the market moves away from the price the client hoped to trade at, the client might not trade at all, he said. An order sent to an exchange with a shorter waiting time, meanwhile, would have been more likely to get executed.