|
|
|
|
|
|
|
disputes? Which will it look to protect and which will it choose to favor, especially when you don't know for sure the real price you should have paid for the stock? All you are told is that your order was executed at some seemingly unpleasing "market" price. |
|
|
|
|
|
|
|
|
It has been my experience that most people are often unhappily surprised when they get an execution back from their brokers. When they are selling, they seem to receive the bottom price; and when they are buying, they all too often seem to pay a price too high. I contend that this is not just a coincidence. All too often market makers are allowed to play with your orders for their benefit rather than being held to strict standards of business accountability. |
|
|
|
|
|
|
|
|
It is totally illogical to me that payment for order flow is allowed to exist in today's politically correct world. Common sense says that a broker cannot represent both the buyer and the seller in the same transaction without a conflict of interest. Payment of order flow without a doubt compromises the integrity of the firm accepting it. |
|
|
|
|
|
|
|
|
When E*Trade went public, it disclosed in its prospectus, dated August 16, 1996, exactly how material the receipt of payment for order flow was to its business. |
|
|
|
 |
|
|
|
|
The Company has arrangements with various Nasdaq market makers, third market firms and exchanges to receive cash payments for order flow for routing trade orders to those firms for execution. The practice of receiving payments for order flow is widespread in the securities industry. Under applicable SEC regulations, receipt of these payments requires disclosure of such payments by the Company to its customers. The revenues received by the Company under these arrangements for the year ended September 30, 1995 and the nine months ended June 30, 1996 amounted to 20% and 22% of total revenues, respectively. |
|
|
|
|
|
|
|
|
Remember that this is a percentage of revenue and not just profitability. How many businesses could survive today if their revenues decreased by over 20 percent with no offsetting reduction in costs. As a matter of fact, their cost might even be higher if the discount firm had to hire additional staff |
|
|
|
|
|