Newspaper article THE JOURNAL RECORD

SEC Proposes Rules to Help Investors Track Brokers

Newspaper article THE JOURNAL RECORD

SEC Proposes Rules to Help Investors Track Brokers

Article excerpt

WASHINGTON (AP) -- Investors often don't get the best price for their buy or sell orders and most don't know what happens to their orders after they make them. Federal securities regulators took a step Tuesday they said could help change that.

The Securities and Exchange Commission voted, 4-0, to propose rules that would require brokers to disclose how often they route their customers' stock orders to other brokers for execution. The information would be published every quarter on free Web sites.

In addition, specialists on stock exchanges and the new electronic communications networks that trade stocks, known as ECNs, would have to issue monthly data on speed of execution and other measures for each stock traded.

About 85 percent of market orders executed on the all-electronic Nasdaq Stock Market are routed to brokers that are not quoting the best price, SEC Chairman Arthur Levitt noted in remarks before the vote.

Market orders are executed without regard to price. In volatile markets, execution may be at a price that is very different from the current quoted price of the stock. Limit orders, by contrast, are executed only at a price specified by the investor or better. Roughly 40 percent of orders on the Nasdaq are market orders.

"How can it be that most investors today simply do not know what happens to their orders after they click `Submit?'" Levitt asked. "It doesn't make sense" given the fact that missing the best price by the minimum increment available -- 1/16 -- on a 1,000-share order can cost an investor $62.50.

Levitt said the SEC proposals would allow investors to comparison- shop, as the financial news media published reports showing the performance of various brokerage firms and other market players.

They would be "incredibly powerful statistics," Annette Nazareth, director of the SEC's market regulation division, told reporters after the meeting.

James Spellman, a spokesman for the Securities Industry Association, said the group welcomed the SEC's move but had some concerns about the proposed disclosure requirements.

"We support having the best flow of information to investors and increasing market transparency," he said. …

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