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Full Disclosure and Transparency: SEC's Plea in Addressing Trading Issues

The Securities and Exchange Commission is weighing on several factors that would require brokers to provide a more detailed and comprehensive guide allowing investors have a comparative broker options.


Paris, France -- (SBWIRE) -- 05/14/2014 -- The proposal to oblige brokers disclose to their investors where stock trades are being executed is now being considered by the Securities and Exchange Commission to address clients’ complaints about not getting the best prices when buying and selling large numbers of shares.

Brokers delegated with orders in the U.S. stock market are given several choices from a number of exchanges and private venues. T. Rowe Price Group Inc., along with a few money managers informed controllers that incentives offered by exchanges for drawing orders can put a broker’s monetary interest against with the customer’s.

According to SEC, they are now facing pressures to renovate trading the book “Flash Boys” of Michael Lewis claimed that high-frequency impairs injures other investors by knowing which shares these investors are wanting to buy, purchase, and sell back at higher costs. This gave an impetus for SEC to review every facet of how stocks are being traded. Regulators are now working on recognizing the changes that should be executed.

According to Kara M. Stein, SEC Commissioner, the body is already focusing on these surmounting issues and are dedicated to ensuring that the market is just, competent, and is promoting capital formation. The SEC’s staff are expected to present potential policy choices.

Agents are potentially to face divergence in the process of sending customer orders. They can either confine a repayment or pay a fee to a exchange depending on the type of order used. However, classified venues like the dark pools charge lower fees but they cannot publicize how they treat customers.

Andy Brooks, Head of US Equity Trading at T. Rowe Price said that one way of aiding investors be protected against the greedy traders is via obliging brokers to report every step they take in fulfilling a customer’s order. Large investors can certainly get such reports. Regulators could possible require a more detailed and comprehensive guide allowing investors have a comparative broker options. The question of having a broker sending an order to a venue where there is no execution will be resolved.

There is but a need for greater transparency. Regulators should be more vigilant in encourage more uniform-order routing notices. Although proper disclosure would be a big help, the SEC should conduct several trials on how to modify the economic incentives affecting how orders are being handled.

Obliging the brokers for more disclosure is not enough. The effort to assist investors must be more forceful and effective.

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