“Brokerages that cater to mom-and-pop investors are emerging as an early victim of the intensifying scrutiny of high-speed trading.
“Shares of E*Trade Financial Corp., Charles Schwab Corp. and TD Ameritrade Holding Corp. tumbled last week amid concerns that regulators would ban a practice that allows brokerages to collect hundreds of millions of dollars a year in revenue by selling orders to middlemen who use high-frequency strategies to trade with the brokers’ customers.
“The practice, called payment for order flow, has gained more attention since the release of “Flash Boys,” a book by Michael Lewis that argues the markets are “rigged” to benefit high-frequency traders, allegations that are stirring up long-running questions about the fairness of markets.
“The worry for some brokerages is that regulators will seize a moment when trading is in the spotlight to crack down on payment-for-order-flow arrangements, analysts said.”
Read full Wall Street Journal article here.