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.”