November 1, 2013

Order Routing Squabble

By

Peter Chapman

Money managers' interest in eliminating exchange rebates is meeting resistance from exchanges, brokers and regulators. At a recent industry conference, industry representatives balked at the idea of a pilot program that could drastically reduce rebates or replace maker-taker pricing altogether with a charge on both sides of a trade.

"It would be difficult to change that dynamic," Joe Mecane, head of U.S. equities at NYSE Euronext, said at the Investment Company Institute's annual market structure conference.

Joe Mecane, MYSE Euronext

[See Traders Magazine Coverage on Rebates]

One of the New York Stock Exchange's largest market makers agreed, arguing that elimination of the rebate would kill his business. "If a flat rate were to go across that business, then that business would be very compromised," Bill White, Barclay's head of equities electronic trading, said.

Buyside traders have been lobbying their brokers and the regulators behind the scenes for the change arguing that brokers may be routing their orders to venues that pay the highest rebates rather than those that offer the best execution. In such a case, the broker pockets the rebate and the buyside gets an inferior fill. "Any inducements to order flow routing insert a conflict of interest," said Andy Brooks, head of equity trading at T. Rowe Price Associates.

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