SEC rule may risk harming investors

Individual investors could be hurt should regulators alter an equities-trading rule limiting the prices at which brokers can execute orders away from public markets, an executive at TD Ameritrade Holding Corp said.

An eight-member committee urged the Securities and Exchange Commission in a report yesterday to adopt a restriction called a trade-at rule. It would prevent venues and brokerages from executing orders within their walls unless they improve pricing by a specified amount versus the market’s best level.

The change is designed to limit the amount of trading on private venues, including dark pools, that represent about 30 per cent of the market. NYSE Euronext and Nasdaq OMX Group Inc, the biggest operators of US exchanges, argue the transactions impair price discovery, or investors’ ability to determine the best prices based on buying and selling interest. While the rule may shift more orders to public markets, it may also mean retail investors won’t get prices that are as good as what they now receive, TD Ameritrade’s Christopher Nagy said.

“I was disappointed,” Nagy, a managing director for order routing, sales and strategy at the third-largest retail brokerage by client assets, said in an interview. “The report appears to be a politically motivated stalking horse to implement the trade-at rule. A trade-at would serve to increase costs for retail investors by creating an inconsistent trading experience.” Joseph Stiglitz

The committee, created by the SEC and Commodity Futures Trading Commission after the 20-minute plunge on May 6 erased $862 billion from US shares before prices recovered, gave 14 recommendations for improving regulation. Members include Joseph Stiglitz, an economist who won the Nobel Prize; David Ruder, a former SEC chairman; Brooksley E Born, who was chairman of the CFTC; and John J Brennan, chairman emeritus and senior adviser at mutual-fund operator Vanguard Group Inc.