Brokers’ Order-Router Role Needs Review, SEC’s Stein Says

Investors should be given more information about where brokers send a stock order to be filled and whether that decision yielded the best price, a member of the U.S. Securities and Exchange Commission said today.

Additional disclosure would help investors know whether their broker is serving their best interest or routing orders to avoid fees or capture rebates, Commissioner Kara M. Stein said at a Washington conference sponsored by the Council of Institutional Investors. The SEC is weighing such a plan as part of a review of how stocks are traded, according to three people familiar with the matter.

The SEC is facing pressure to overhaul trading rules after Michael Lewis’s “Flash Boys” book alleged that high-frequency traders benefited from exchange rules to take advantage of slower investors. The book also lays blame on the SEC for its set of 2007 rules that resulted in fast traders gaining an edge over slower ones and equity markets becoming more complex and interconnected.

“We need to be reexamining order-routing practices and we need to be empowering you with information to examine them yourselves,” Stein said. “Meaningful, usable data can help us answer many of these questions.”

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