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TD Ameritrade Admits "Virtually Always" Sells Retail Orders To HFTs

Tyler Durden's picture




 

Yesterday's Katsuyama vs High Freaks battle was once again a game of distraction from the facts. However, despite one member of the panel's desperate attempts to show how great and good HFT was for poor old retail, it was Carl Levin that nailed TD Ameritrade - which handles massive amounts of retail stock orders - for "virtually always" having a conflict of interest in its decision to seek the market that paid them the most as opposed to the one that provided best execution for the client. Perhaps it was John McCain that summed up the farce best when he exclaimed, "Mr. Brennan [Vanguard's head], I don’t accept your allegation that everything is fine."

As NYTimes reports,

TD Ameritrade, a brokerage firm that handles vast numbers of stock trades for average investors, promises to execute those orders on the best possible terms.

 

But in practice, TD Ameritrade routes a large number of the customer orders to the exchanges that pay it the most, Steven Quirk, an executive at the firm, said at a Senate hearing on Tuesday.

 

...

 

Mr. Levin pointed to different data from the first quarter of this year that showed that TD Ameritrade routed its nonmarketable orders to two markets that paid the highest rebates available.

 

“So, again, your subjective judgment as to which market provided best execution for tens of millions of customer orders virtually always led you to route orders to the markets that paid you the most?” Mr. Levin asked.

 

“No, not always led us...” Mr. Quirk began.

 

“I said ‘virtually always,’ ” Mr. Levin responded.

 

After a short pause, Mr. Quirk said, “Virtually, yeah.”

But perhaps John McCain nailed it best...

Mr. McCain said this reminded him of a story about a man in a small town who played poker even though he knew it was crooked, because “it’s the only game in town.”

 

“Mr. Brennan,” Mr. McCain added, “I don’t accept your allegation that everything is fine.”

 

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Wed, 06/18/2014 - 11:55 | 4869581 maskone909
maskone909's picture

might aswell turn all the HFT's into brokerages.  whats the fcking diff?

Wed, 06/18/2014 - 11:57 | 4869590 mayhem_korner
mayhem_korner's picture

 

 

Same as the difference between hookers and pimps.

Wed, 06/18/2014 - 11:59 | 4869603 alien-IQ
alien-IQ's picture

you mean one gets fucked so the other can get paid?

Wed, 06/18/2014 - 12:07 | 4869636 Hippocratic Oaf
Hippocratic Oaf's picture

Slap 'em with a 10million fine while they net 500million

SSDD

Extortion from both ends

Retail loses

Wed, 06/18/2014 - 12:25 | 4869720 TheLooza
TheLooza's picture

As somone who has lost $250,000 options trading using Amewritrade, I observed phenomenon I thought nearly impossible to chalk up to just bad luck that correlated almost precisely with my purchase.  

I do wonder what a class action lawsuit against ameritrade would look like....

Wed, 06/18/2014 - 12:34 | 4869772 Rainman
Rainman's picture

Like most CALs, upon winning you will be awarded a check for about $35.66 net of lawyer fees.

Wed, 06/18/2014 - 12:49 | 4869868 Say What Again
Say What Again's picture

Wait a minute.

Are you trying to tell me that TD-Meritrade was NOT looking out for my best interest?

I find that hard to believe.

Wed, 06/18/2014 - 14:16 | 4870325 Four chan
Four chan's picture

i traded thir rigged market since they were waterhouse my check should be 39.01.

Wed, 06/18/2014 - 15:40 | 4870756 scam_MERS
scam_MERS's picture

Hell, I was with them from back when it was Kennedy, Cabot & Co in the early 90s. Then it was Waterhouse, then TD Waterhouse, then Ameritrade, now TD Ameritrade. They've sucked since day one, it's only gotten worse over time. Lousy customer service to boot! I went to Schwab and haven't had an issue yet that can't be resolved with one phone call. This story is just icing on the cake with TD, no one should be surprised they trade for their benefit and not yours.

Wed, 06/18/2014 - 12:35 | 4869776 alien-IQ
alien-IQ's picture

it would look like an opportunity for lawyers to make a fuck-load of cash while the people that got fucked by TDA get fucked again by the legal system and then fucked yet again by their own lawyers.

does that sound accurate enough?

Wed, 06/18/2014 - 14:18 | 4870339 NidStyles
NidStyles's picture

I want to know when I can start renting time on one of these HFT servers. 

Wed, 06/18/2014 - 12:43 | 4869819 Colonel Klink
Colonel Klink's picture

You'll get a free years membership to continue your ass raping, the lawyers will get all the cash value.

Wed, 06/18/2014 - 14:03 | 4870230 Freddie
Freddie's picture

Some of the worst are options "Gurus" pimping for these brokerages including TOS and others.  They are in Texas, Utah, Chicago (Tom), Kentucky and a few others.  Many of these gurus are frontrunning their customers too.  They suck people in and they get eaten alive by the broker, market makers, HFTs, etc.

They generate a lot of order flow.  I followed one of the gurus and they had mega churn in customers because most of the people were losing money.

Wed, 06/18/2014 - 13:00 | 4869945 pelican
pelican's picture

Personally, I don't trust any of it. Not 401k, not single trades, etc.

Wed, 06/18/2014 - 14:11 | 4870296 twh99
twh99's picture

You don't need a fine.  Tax them $1 for each trade they cancel before execution.  Right now these are cost-free.

Wed, 06/18/2014 - 14:56 | 4870562 Kirk2NCC1701
Kirk2NCC1701's picture

And yet we still call them "Markets".

Wed, 06/18/2014 - 12:02 | 4869614 HedgeAccordingly
HedgeAccordingly's picture

– JPM CFO Ruth Porat on high-frequency trading and regulation

http://hedge.ly/1m2zMWU

Wed, 06/18/2014 - 12:46 | 4869827 Colonel Klink
Colonel Klink's picture

Ruth Porat(Ashkenazi Jew) – Executive Vice President and Chief Financial Officer

IMAGINE THAT, UNPOSSIBLE!!!

Felchmeister to defend the tribe in 3...2...1...

Wed, 06/18/2014 - 15:25 | 4870682 Kirk2NCC1701
Kirk2NCC1701's picture

I get that, Klink.  They're just looking out for their own -- to an extreme -- and they have a Master Plan that all are working to.  So what!?  It's what a strong and homogenous group would and should do, to survive for millenia.  You're asking the wrong questions - your ladder is against the wrong wall, so to speak.

Here are the REALLY awkward & embarrassing questions for "Christians" (claiming to be followers of Christ):

1. Who (the fuck) is looking out for them?  Other "Christians"?  Hardly, if you look at history of the last 1,000 years.

2. At what point does a person admit that their Worldview (philosophy or brand of religion) is no longer adequate to deal with reality?  "Adapt or perish" - Mother Nature.

3. Do you still not realize that "turning the other cheek", "love thy neighbor", etc and other Semitic "aphorisms for Sheeple" are meant to be applied only WITHIN the group, and that a Quid Pro Quo rule MUST apply to those outside?  Lest you become the Indigenous & Symbiotic species that gets taken over by an Invasive & Predatory species.  "Adapt or perish" - Mother Nature.  Repeated for emphasis.

You'd all be better off being followers of Ragnar Lothbrok, than followers of that Hippie Healer-Philosopher, who was promoted to Deity status and whose accomplishments were recorded many decades later, i.e. after having circulated by word-of-mouth via many, many people and several generations.  Yeah, that's a real error-proof method of recording history, right?  Try that today.  Pfff.

Bottom Line:  As long as Christians and Muslims keep fighting and killing their own kind and each other, they will regress to a rabble of little people, and useful Sheeple.  But, hey, I realize that Cognitive Dissonance is a bitch, when having to overcome a lifetime of mantras, brainwashing and conditioning (by the Church and State).  Which is why I keep re-posting this word of advice:

"To give up all illusions and pretenses, is the beginning of true wisdom" - Kirk out.

Wed, 06/18/2014 - 17:46 | 4871203 Colonel Klink
Colonel Klink's picture

I like to look at other points with a keen eye.  Like if they say, do unto other as you'd have done unto you.  Then it's fair game to do unto those, as they do unto others.  Also do unto others before they do unto you.

As for turning cheek, it's usually on the other person, and it's their ass I'm kicking.  I don't subscribe to "man's law/words"  I prefer to look at nature's law and the laws of survival.  Mean harm to me, and I'll be more apt to bury you.

The big story book, written by those who wished to have control over others through "scripture".  Pass!

Wed, 06/18/2014 - 12:02 | 4869617 slaughterer
slaughterer's picture

One mistake here: Kev' gets the retail orders before HFT gets it. 

Wed, 06/18/2014 - 12:17 | 4869651 Freddie
Freddie's picture

I talked to some hedge options guys in NYC.  They said Interactive Brokers was the least scummy of the online brokerages.  They said if your account is over $1 million then the obline brokerage firms F**k with you less.

They said IB was decent.

Wed, 06/18/2014 - 12:28 | 4869733 maskone909
maskone909's picture

i think that house is run by that guy with all of the "obama is a socialist" ads from the pres campaign.  seems like a straight shooter.

Wed, 06/18/2014 - 13:25 | 4870064 Freddie
Freddie's picture

Hungarian-American name Thomas Petterffy.  He seems like a good guy. He was a trader and programmer.

http://en.wikipedia.org/wiki/Thomas_Peterffy

I am not pimping for Interactive Brokers.  The traders I have talked to said their fills are better than the others.  They said TD/TOS plus the others jack your orders.  If your acct is over $1 million or more then they rip you off less.   They said IB is much better than the rest of the pack.

I have heard this from other traders as well.  I am not crazy about the options fills at TOS (TD).  They are not very good.

Wed, 06/18/2014 - 11:56 | 4869586 alien-IQ
alien-IQ's picture

WAIT A MINUTE!!!!

Everything's not fine?

Wed, 06/18/2014 - 12:12 | 4869640 Tasty Sandwich
Tasty Sandwich's picture

 

 

Wed, 06/18/2014 - 12:12 | 4869656 alien-IQ
alien-IQ's picture

thanks. I was on the verge of freaking out.

Wed, 06/18/2014 - 11:58 | 4869593 NoWayJose
NoWayJose's picture

Translation of "Mr. Brennan [Vanguard's head], I don’t accept your allegation that everything is fine"

In the language of common folk - "Mr. Brennan, you will need to increase our war chests in this election year if you wish to continue business as usual."

Wed, 06/18/2014 - 11:59 | 4869600 Seasmoke
Seasmoke's picture

glad to hear than Sen. Johnson has no problems getting his $2000 insider trading orders filled. 

Also, if I understand him correctly, he has no problem , if I go to Wal-Mart daily and steal a pack of gum, every day. 

Wed, 06/18/2014 - 11:59 | 4869602 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Pitchforks!

Ha, but the little guy neither knows nor cares ... beyond knowing that most everything around him / her is out of whack.

Wed, 06/18/2014 - 12:07 | 4869631 Rainman
Rainman's picture

" Sounds to me like you guys is a couple of bookies "

                 Billy Ray

Wed, 06/18/2014 - 12:06 | 4869632 highly debtful
highly debtful's picture

You know, I can think of a lot of questions regarding the economy that can be answered with a simple "Virtually, yeah."

Wed, 06/18/2014 - 13:52 | 4870202 NotApplicable
NotApplicable's picture

I prefer "theoretically" as it sounds much more intelligent and sciencey. Not to mention, you can add "ceteris paribus" in support of the theory and it becomes impossible to rebut as the theory can never exist in reality.

I should of been a sophist. If only I was that evil.

Wed, 06/18/2014 - 12:11 | 4869653 slightlyskeptical
slightlyskeptical's picture

I use Ameritrade. I usually get filled below my bid by some fractions of a cent. Am I getting best execution? Really hard to say.without some really specialized knowledge.

Wed, 06/18/2014 - 12:14 | 4869667 Freddie
Freddie's picture

If your account is $1 million or more - online brokerages will give you decent fills.  Interactive Brokers is supposedly the best of the bunch in fills aka they F you less than the others.

Wed, 06/18/2014 - 13:35 | 4870124 redpill
redpill's picture

Stop shilling

Wed, 06/18/2014 - 14:06 | 4870256 Freddie
Freddie's picture

I am not shilling.  Just offering a least bad alternative.  People are better off staying out of the whole ponzi scheme.

Wed, 06/18/2014 - 15:16 | 4870646 Ponzi Pontiff
Ponzi Pontiff's picture

You said it once, it was advice.

You said it twice, it started to sound rehearsed.

You said it three times, you're shilling.

This is Fight Club - you only need to say it once.  The folks here are smart enough to get it without you having to repeat yourself over and over like fucking CNN.

Wed, 06/18/2014 - 15:41 | 4870765 prmths2
prmths2's picture

IB has its problems, but it is the only broker I have seen that has negative commissions on certain trades. Some exchanges offer rebates for limit orders off the bid and ask that increase market liquidity. With IB it is possible to execute at a limit price and have a negative commission.

Wed, 06/18/2014 - 12:19 | 4869689 matinee55
matinee55's picture

well, how you feel knowing they don't have your best interests at heart- but their profit margin

Wed, 06/18/2014 - 12:32 | 4869754 Bangback
Bangback's picture

Almost certainly you (and I) are not.  There is another ask you're not seeing that's even lower.  The HFT undercut the posted ask (making you somewhat happy), then immediately buy the stock from an even lower ask in a dark pool somewhere. That dark pool ask should have been yours. The $10/trade commission is just the loss leader on you getting ripped off on execution.  If it were free, you'd be suspicious.  At $10, you think you're getting a great deal.

Back in the day, Ameritrade refused to route your order to be the listed bid or ask (inside the spread).  Your order was only filled if it hit the bid or ask. Fortunately regulators banned this practice.

16ths, forced routing of orders, HFT.  Always a new scam on the retail investor.  I've tried most (though not IB) -- they're all the same.

 

Wed, 06/18/2014 - 13:26 | 4870077 Freddie
Freddie's picture

TD bought Datek back in the day and Datek and Island ECN were the same pirate scum.

Wed, 06/18/2014 - 12:45 | 4869829 klinko
klinko's picture

That .0001 is in your "favor" but even so, the other .0099 of the spread isn't going to make a difference in your trading anyway. It's insignificant to what your overall p/l will be. The retail trading risk is the movement, not the liquidity. Giving up the spread occurs in all parts of the business. You give the HFTs this business, because without it, you'd be paying more. All retail brokerages do the same thing. They route find all open orders at high bid & low ask, then route to the one that pays them the most. You're still going to the NBBO. If you don't like it, direct route. They all offer this. And if you still don't like it, open a HFT firm and call it a day. With all of the anti-government, free market sentiment on this site, don't fall back into the trap and compromise and demand regulation when it helps you. Just stay out.

Wed, 06/18/2014 - 12:12 | 4869654 JenkinsLane
JenkinsLane's picture

Class action lawsuits coming to TD?

Wed, 06/18/2014 - 12:13 | 4869659 Freddie
Freddie's picture

John McCain asked a tough question?  I guess Wall Street is not sending his pals ISIS enough money.  Maybe Wall Street can do an IPO on ISIS.   They can call it ISIS.com.

Wed, 06/18/2014 - 12:15 | 4869666 Quinvarius
Quinvarius's picture

I am pissed McCain finally found someone or something he didn't want to bomb...and it needs bombing.

Wed, 06/18/2014 - 13:00 | 4869944 RaceToTheBottom
RaceToTheBottom's picture

The MIC crew had a backroom meeting with the WS crew.

Wed, 06/18/2014 - 12:16 | 4869670 paint it red ca...
paint it red call it hell's picture

If mccain is involved and the one throwing out the hot media sound bite, we all know where HFT investigation  is going, right?

Nowhere.......

Wed, 06/18/2014 - 13:57 | 4870215 NotApplicable
NotApplicable's picture

John McKeating, my hero!

Wed, 06/18/2014 - 12:35 | 4869780 I Write Code
I Write Code's picture

My last market execution at Schwab came within half a penny of the last quoted price, it was probably from their own "dark pool" but I'm OK with it.

Wed, 06/18/2014 - 12:59 | 4869936 insanelysane
insanelysane's picture

They've noted that bug in their programs and have some developers fixing it asap.

Wed, 06/18/2014 - 13:09 | 4869988 buzzsaw99
buzzsaw99's picture

i agree. it is the stupid pension funds who are getting screwed. if i bid $20/share and pay $19.9999 i have no complaint. however, brokers do other things, like lending my shares out to be shorted, which pisses me off because that goes against my own best interests while gaining me nothing.

Wed, 06/18/2014 - 12:51 | 4869888 disabledvet
disabledvet's picture

Nothing says "this is for show" better than that these brokerages are surging on this news.

The both literal and figurative heart of the matter are "information exchanges" where our "virtual being" is bought and sold on a daily basis.

If Government cannot come clean on the existence of these things and how now is the time to bring them out of the cold then obviously "Wall Street will bid these companies higher" because they already know the means and methods here.

Eventually the equity price will get too high for the hearings to continue as the entire edifice of "money will be used to cover the whole identity thing up" is maintained and "the need for Government period" (oversight) wanes.

The entire system is just a wager...ironically as wages collapse.

Since betting men care nothing about what happens to the men only "the next game" default is the only "answer" (meaning mathematical result of the inability to shut down the casinos...both literally and figuratively) as the debt issuance grows higher and higher and higher and higher...

Wed, 06/18/2014 - 12:58 | 4869928 insanelysane
insanelysane's picture

Brokers: "How much of a campaign contribution do I need to send to make this go away?"

Congress: "Just start sending weekly transactions under $10k and you can stop when you see the press release that says you agreed to pay a virtually minimal fine and not plead guilty to any wrongdoing."

Brokers: "Lunch then golf or golf then dinner?"

Wed, 06/18/2014 - 12:59 | 4869935 Pee Wee
Pee Wee's picture

Money is poisoned.

Price discovery is poisoned.

Markets are poisoned.

Yet retards on ZH only emulate/vaidate dumb money by playing.

Whoever is in the pool is the sucker.   You deserve every bad thing that happens to your wealth.

Wed, 06/18/2014 - 13:15 | 4870015 insanelysane
insanelysane's picture

But it's the only game in town.

Wed, 06/18/2014 - 13:14 | 4870014 Chippewa Partners
Chippewa Partners's picture

So much for FIDUCIARY DUTY to all the investment managers that custody there!

Wed, 06/18/2014 - 13:20 | 4870036 Chippewa Partners
Chippewa Partners's picture

For anyone interested, "Flash Boys" is worth every penny to understand how the game is rigged.    Excellent work Mr. Lewis!!! 

Wed, 06/18/2014 - 14:05 | 4870255 ajax
Wed, 06/18/2014 - 13:24 | 4870057 Hacksaw
Hacksaw's picture

Anyone using any online broker that uses any type of limit order is getting the shaft.

Years ago I noticed a different pattern in order fills and became suspicious of front running. I tried a little experiment, I bought 100 shares of a $5 stock, waited a few minutes to see what the price was going to do, in that time the price went up a few cents. Then I entered a sell stop order at 10% below my buy price. The price reversed almost as soon as my order became active. The price continued going down until it got to my stop price, my order executed, the stock price reversed again and went right back up to around $5.02. I haven't used anything but a market order since.

Wed, 06/18/2014 - 15:50 | 4870806 scam_MERS
scam_MERS's picture

Wow, that's a pretty blatant in-your-face manipulation! I'd be pissed too. I suspect what you observed is true for a long time anyway, what you said just confirms it to me. Especially on low volume days or with thinly-traded stocks this could easily be done. I think you're right, even though there's more risk, you're better off with a market order and let the chips fall where they may. You know we're going to get screwed anyway on execution, but we have a better chance to get a good price with market orders.

Wed, 06/18/2014 - 15:51 | 4870816 L G Butz PhD
L G Butz PhD's picture

so, you think you're not getting clipped by using market orders?

umkay

Wed, 06/18/2014 - 13:34 | 4870119 world_debt_slave
world_debt_slave's picture

It's too complicated for us muppets to understand.

Wed, 06/18/2014 - 14:07 | 4870269 ajax
ajax's picture

 

 

"It's too complicated for us muppets to understand"

Perhaps the how but not the why

Wed, 06/18/2014 - 16:22 | 4870961 CitizenPete
CitizenPete's picture

Tgose fucks in Congress have inside information and all the special examptions from normal traders that can be imagined.  How can they conduct any sort of non-biased hearing? 

Thu, 06/19/2014 - 01:27 | 4872540 P-Mack
P-Mack's picture

Tell me if you think this sounds fair. Or even legal.

 

1.       I want to buy 20 tickets to a certain football game

2.       There are only 20 available at the price I want to buy them at. Every other ticket is more. You tell me you will get them for me at that price. I am paying you for this service.

3.       Without telling me, you go and tell a ticket scalper that I want to by those exact 20 tickets in exchange for payment.

4.       He then finds a vendor selling them and buys them

5.       He finds me, on referral from yourself, and sells them to me at a higher price

6.       He makes money

7.       You make money from his payment plus the fees I paid you for "finding me the best available price"

8.       I pay more for the tickets than I wanted to

 

3 questions:

 

1.       Would I be happy if I knew this was how I got my tickets?

2.       Have you acted in my best interests and if not…

3.       have you breached your fiduciary obligations ?

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