| WASHINGTON, July 15
WASHINGTON, July 15 The U.S. stock market
regulator should eliminate two pricing models that can create
conflicts of interests for brokers, the head of a powerful
Senate panel wrote in a letter released on Tuesday.
The letter follows a hearing last month in which Senator
Carl Levin, the Michigan Democrat who chairs the panel,
scrutinized pricing models U.S. stock exchanges use to attract
trading, which have increasingly come under fire.
"Permitting conflicts of interest to persist undermines
investors' confidence that they are getting a fair deal," Levin
said in a letter to Mary Jo White, who chairs the Securities and
The letter was dated July 9 and was released by Levin's
office on Tuesday.
Last month's hearing before the Senate Permanent
Subcommittee on Investigations focused on the "maker-taker"
model, in which exchanges pay brokers for certain types of
orders and charge fees for other types of orders.
This raises a potential conflict because brokers may be
enticed to choose a trading venue that pays the highest rebate,
and not because it is in the client's best interest, Levin said.
A second conflict of interest can arise when wholesale
brokers pay retail brokers for order flow, Levin added.
Best-selling author Michael Lewis in his recent book
contends the stock market is rigged in favor of firms trading
with high-speed computers and raised concerns about conflicts of
interest in how orders are routed.
The SEC's White has proposed a series of reforms to address
high-speed trading, trading in anonymous so-called dark pool
venues and potential conflicts that may influence how brokerages
route customer orders.
She has not specifically called for reforms to the
maker-taker payment model.
But it has come under renewed scrutiny since last year after
researchers from the University of Notre Dame and Indiana
University suggested that payment-for-order-flow practices may
prevent customers from receiving the best price.
"The SEC has had more than 4-1/2 years to examine the
results of the holistic market structure review that it
launched in 2010. Further study will not change the fact that
conflicts of interest are inherent in the maker-taker system and
payments for order flow. The SEC should immediately initiate
action to eliminate them," Levin said.
(Reporting by Douwe Miedema; Editing by Cynthia Osterman)