On June 14, 2014, the U.S. Senate Investigations Committee
held a hearing on “High-Speed Stock Transactions and Insider Trading.” The
issue at hand concerned the payments that wholesale brokers and exchanges make
to brokers for going through the brokers and exchanges, respectively. An
academic study had found that the broker or exchange that pays the most is not
typically the most efficient, and thus in the best interest of the investor.
Essentially, the payments give rise to a conflict of interest for the retail
broker, who is supposed to put the client’s financial interest first, before
his or her own. Is greater disclosure, such as Sen. Levin suggested,
sufficient? I contend that a conflict of interest that is inherently unethical
warrants complete removal, rather than merely countervailing measures.
The entire essay is at “Maker-Taker
Rebate”
