Senate panel to probe high-speed trading, broker conflicts

Reuters News
Posted: Jun 09, 2014 5:46 PM

By Sarah N. Lynch

WASHINGTON (Reuters) - A Senate investigative panel said on Monday it plans to hold a hearing next week to probe the role that high-speed trading plays in the markets and whether it is harming investor confidence.

The June 17 hearing before the Permanent Subcommittee on Investigations (PSI) will also explore whether conflicts of interest between brokers that place customer orders and trading venues that pay brokers in exchange for those orders could be adversely impacting investors.

The Securities and Exchange Commission allows trading venues to pay brokerages for order flow, as long as the payments are properly disclosed and rules about getting customers the best price in the shortest possible time are followed.

But some have raised concerns about whether payment for order flow creates perverse incentives that may not lead to best execution.

The PSI is a high-profile congressional panel chaired by Senator Carl Levin of Michigan. Over the years, it has produced crucial investigative reports into off-shore tax evasion, the causes of the financial crisis and the JPMorgan Chase & Co London Whale trading incident.

The hearing comes at a time when the SEC is preparing to unveil a slew of new rules targeting core equity market structure matters.

Last week, SEC Chair Mary Jo White said her staff is in the midst of developing a proposed "anti-disruptive trading rule" to curb short-term trading in times of market stress, and rules requiring brokerages to disclose more details about how they route orders for institutional investors.

In May, Reuters also reported that the SEC is separately conducting a wide-ranging probe into how brokerages are handling retail customer orders.

The PSI said it plans to call witnesses from stock exchanges, brokerage firms and institutional investors to testify.

A full list of witnesses will be released on Friday.

(Reporting by Sarah N. Lynch; Editing by Lisa Shumaker)