Commentary

David Weisberger
Traders Magazine Online News

Stop the BS & Promote Real Transparency!

In this shared blog, David Weisberger says a recent WSJ article is wrong and that traders do need to purchase faster and more comprehensive market data to avoid being fined for violating "Best Execution" obligations.

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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.