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Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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May 25, 2007

SEC Focuses on Options

By Nina Mehta

Although broker-dealers in recent years have beefed up efforts to ensure best execution for customers' options orders, payment for order flow still drives order routing decisions, according to a new Securities and Exchange Commission report based on data gathered a year ago. The SEC's Office of Compliance Inspections and Examinations interviewed eight broker-dealers, six of which said that if multiple options exchanges are at the best price, they will route orders to the market center "that pays the most for order flow."

Five also routed "significant order flow" to affiliated specialists or market makers, enabling the firm "to capture the profit a dealer makes on a trade," according to the SEC report.

The report also notes a lack of standardized information concerning execution quality, which may affect firms' ability to conduct reviews of the quality of its trading.