Mendoza School of Business

SEC Weighs Making Brokers Disclose Where Trades Are Sent

Published: April 21, 2014 / Author: Dave Michaels

The following is an excerpt from an article in Bloomberg that mentions Finance Professors Robert Battalio and Shane Corwin. To read the entire article visit: SEC Weighs Making Brokers Disclose Where Trades Are Sent

The U.S. Securities and Exchange Commission is weighing a requirement that brokers tell investors exactly where their stock trades go to be executed, a proposal that may address complaints that the decisions are sometimes made against the client’s best interests.

The proposal could give investors more insight into whether they are getting the best price when they buy and sell large numbers of shares, according to three people familiar with the matter. Brokers entrusted with orders in the U.S. stock market can choose from dozens of exchanges and private venues. Some money managers such as T. Rowe Price Group Inc. (TROW) have told regulators that incentives offered by exchanges for attracting orders can put a broker’s financial interest at odds with the customer’s.

Brokerages often put their own self-interest in front of their clients’ under maker-taker, according to a study by Robert Battalio and Shane Corwin of the University of Notre Dame and Robert Jennings of Indiana University.


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