July 15, 2014 at 4:51 pm

Levin urges SEC to end maker-taker, payment for order flow

The U.S. Securities and Exchange Commission should act immediately to eliminate two stock market pricing models that create conflicts of interest for brokers, Sen. Carl Levin, D-Mich., said in a letter to SEC Chair Mary Jo White.

Levin criticized systems used by exchanges such as Nasdaq OMX Group Inc. and wholesalers such as Citadel Securities that pay brokers for sending orders to be filled. Intercontinental Exchange Inc. Chief Executive Officer Jeff Sprecher and IEX Group CEO Brad Katsuyama also have called for regulators to ban maker-taker, a system in which rebates are paid to brokers who provide exchanges with liquidity.

“Eliminating maker-taker pricing would improve confidence in U.S. equity markets,” Levin wrote in the letter released today. “Such action also would reassure investors that they can rely on their brokers to provide best execution of their trades, without having to question whether a broker might instead be seeking to maximize its own profits at the customer’s expense.”

SEC spokesman John Nester declined to immediately comment about the letter.

The comments by Levin, who leads the Senate’s Permanent Subcommittee on Investigations, could add urgency to the SEC’s review of stock-market conflicts, which White described last month. Institutional investors such as T. Rowe Price Group Inc. and some academics and exchange officials have prodded the SEC to test trading without maker-taker.

Levin held a June 17 hearing that focused on payment for order flow, the practice of brokers selling their retail orders to stock-market wholesalers such as Citadel and Citi Global Markets. TD Ameritrade Holding Corp. disclosed to Levin’s committee that it “virtually” always sends orders to trading venues that provide it with the highest payment.