From the STA Conference in Washington, DC—The Securities and Exchange Commission’s top markets and trading official sees the onslaught of zero-fee announcements out of discount brokerages over the last week as a good thing — but also a reminder that brokers need to be clear about disclosing other types of costs.
“It is always good to see competition bringing down prices for investors,” Brett Redfearn, the SEC’s director of the division of trading and markets, said at an industry conference here on Thursday.
Redfearn’s comments come after Interactive Brokers, Charles Schwab, TD Ameritrade, and E-Trade have made similar decisions in recent days to eliminate the cost of trading US-listed stocks, exchange-traded funds, and options in a bid to take on new digital entrants like the trading app Robinhood — and appeal to younger investors.
These moves are a sign of the times. Across the online trading and wealth management landscape, services from the cost of trading stocks and investing to finding financial advice are quickly falling as competition ramps up.
Execution quality — which encompasses how quickly a trade gets done and price moves that hurt or help the customer in the meantime — is one looming question many in the industry have following brokerages’ decision to cut fees. And the business of selling clients’ buy-and-sell orders directly to high-speed market makers, as opposed to going direct to exchanges or trading venues, has come into the spotlight as commissions race to zero.
“Best execution doesn’t change,” Redfearn said. “The best execution is best execution. Regardless, there still is a best execution obligation to customer order. That doesn’t change.”
Brokerages such as Charles Schwab, TD Ameritrade and E-Trade already receive payment for their order flow. However, with the loss of revenue previously derived from commissions, some have questioned if brokerages will look to be more aggressive in selling their clients orders, and the impact that will have on the price customers will be able to execute trades on.
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