|SEC takes close look at brokers At issue is duty to get best price for customers|
By JENNY ANDERSON
New York Times
July 15, 2005, 11:01PM
NEW YORK - The Securities and Exchange Commission is investigating whether major brokerage firms are fulfilling their obligation to secure the best price for customers who are trading options, according to a letter sent to Wall Street brokers.
The letter, sent on July 5, says that the SEC is examining whether the practice of payment for order flow — brokers and exchanges paying retail trading firms for their orders — violates a broker's fiduciary duty to secure "best execution," a vague term which essentially defines getting the best deal for a customer.
The investigation is focused on options trading, an area that is less transparent than stock trading.
"Does the firm receive payment for order flow or any other inducement to route options orders to a particular market?" the letter reads.
SEC officials declined to comment on the letter.
The investigation is one among many under way by the SEC to ensure that brokers give their customers a fair shake.