Payments to Big Brokers Under Fresh Scrutiny

Discount brokerages are in the spotlight again for a practice that generates hundreds of millions of dollars in revenue for them annually.

Payment for order flow, where a brokerage sells its orders to a trading firm for a fee, has been an issue in the markets for decades, but it is under increasing scrutiny from the New York Attorney General and others lately.

The practice is expected to be discussed at a hearing held by the Senate Permanent Subcommittee on Investigation, led by Sen. Carl Levin, on June 17th.

Among the speakers are Steven Quirk, a senior vice president at Omaha-based TD Ameritrade Holding Corp. and Robert Battalio, a professor of finance at the University of Notre Dame who has raised questions about the routing practices of discount brokers.

At the core of the debate is a set of questions: why would a brokerage house sell its orders to a trading firm and why would a trading firm pay so much for those orders?

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