(Below re-published with permission from MarketsMuse.com)– Broker Rebates, Payment-for-Order-Flow and “Pay-to-Play” have become synonymous with new world order in which exchanges, dark-pool operators and high-frequency trading (“HFT”) firms, (the so-called “flashboys”) dominate the world of stock trading. While many Wall Street geniuses will argue “the genie is out of the bottle” when it comes to payment-for-order-flow, it doesn’t mean this practice is right-minded, no less legal-and it hasn’t stopped naysayers from arguing that customers’ best interests are clearly not part of the equation. A Federal judge in Nebraska seems to agree, based on his ruling last week that allows a class action lawsuit aimed at TD Ameritrade in connection with their receiving payment-for-order-flow rebates from high-frequency trading (“HFT”) (and not even sharing those rebates with customers!) to proceed. The plaintiff argument is that TD has violated best execution guidelines. Should anyone be shocked?! After all, the topic of payment-for-order-flow and barely-disclosed rebates paid to brokerages by exchanges and electronic market-making firms in consideration for routing orders to them has been a topic of spirited debate for more than several years.

Here’s the excerpt from WSJ reporting by Cezary Podkul:

Mom-and-pop investors who think their brokers are prioritizing high-frequency traders over them may soon have a chance to try to prove their case in court.

A federal judge in Nebraska this month ruled a class-action lawsuit could proceed against TD Ameritrade Holding Corp. AMTD -1.09% , one of the nation’s largest discount brokerages. In his ruling, the judge cited “serious and credible allegations of securities fraud” stemming from the company’s order routing practices.

Plaintiffs allege the discount brokerage prioritized its profits over their best interest on stock transactions

The TD Ameritrade customers who brought the suit alleged the company, which provides investing and trading services for 11 million client accounts, prioritized its profits over their best interests. They claim it did so by accepting incentives from stock exchanges and large electronic trading firms to route customer orders to them without ensuring the customers would get the best prices available – an obligation that along with related factors is known as “best execution.”

A spokeswoman for TD Ameritrade said the company disagrees with the judge and will appeal his ruling.

To continue reading, please visit MarketsMuse.com

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Online retailer Overstock.com expects trading to begin on its blockchain-based alternative trading system before the end of the year, according to company officials.

The ATS will be operated by Overstock.com subsidiary TO as part of the company’s Medici Project, and it will only handle trades in the company stock, at least at first. So while it’s not an immediate competitive threat to the existing field of 13 U.S. stock exchanges plus several dozen ATSs, the initiative will be closely watched as a gauge of the potential of distributed-ledger technology in capital markets.

The ATS will write completed trades to its blockchain instead of routing them to the National Securities Clearing Corp., a subsidiary of Depository Trust & Clearing Corp., for clearing.

Overstock.com plans to prime the liquidity on the ATS through a new issue of corporate shares to existing shareholders the day before trading commences on the new trading venue.

T0 officials plan to formally announce its partnership with a broker-dealer on Sept. 12. “For those who want to trade on the ATS, they will have to create an account with the broker-dealer,” said Overstock’s man-in-charge Judd Bagley, who declined to name the brokerage firm.

BrokerDealer.com database of Global Broker-Dealers includes thousands of BDs in 30+ countries.

I WANT TO ACCESS BROKERDEALER.COM GLOBAL DATABASE

To continue reading the story from MarketsMuse.com, click here

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Taking home the gold for Best Broker-Dealer “Overall” :Wolverine Execution Services (WEX). Runners-up included Bloomberg Tradebook, Interactive Brokers, Mischler Financial Group and Dash Financial. Best Broker-Dealer Research was awarded for the third consecutive year to Mischler Financial Group, the industry’s oldest minority broker-dealer owned and operated by Service-Disabled Veterans. Runners up in the Best Research category: Stifel Nicolaus and Sandler O’Neil.

Best Broker-Dealer Equities was awarded to Fidelity Capital Markets and  in the client service category BNP Paribas took the prize. Best Options Platform was awarded to Interactive Brokers and Best Options Broker was awarded to WallachBeth Capital.

Noted Mischler Financial Group Managing Director Ron Quigley, who accepted the award on behalf of his firm, “Its a great honor to even be considered as a contender for an industry award when considering the pedigree of the other great firms that were nominated. It’s always good to be in good company and its best to be recognized for capabilities.”

The full list of nominees and winners of Wall Street Letter 6th Annual Institutional Trading Awards is available via this link

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“Corporate Bond Market- Balancing on a Knife Edge” is courtesy of extract from the 10.02.15 weekend edition of “Quigley’s Corner”, a daily synopsis of the investment grade corporate bond market and rates trading space authored by Ron Quigley, Managing Director of investment bank and institutional brokerage Mischler Financial Group, the financial industry’s oldest and largest minority brokerdealer owned and operated by service-disabled military veterans. Mischler Financial was selected in 2014 and again in 2015 for the Wall Street Letter Award “Best Research-Brokerdealer”

Blackouts couldn’t be more optimally timed as we experience massive re-pricing in our IG primary credit market.  The corporate black-outs are serving as an unplanned, well-timed inherently built-in “kick-the-can” that is necessary in helping us to all buy time as we navigate thru what is perhaps the most unpredictable, treacherous, volatile and uncertain time that our primary markets have experienced since 2008.  As one very senior syndicate source told me “the credit markets are sitting on a knife’s edge.” IG spreads are on the whole 44 bps wider at the end of the third quarter according to Morgan Stanley.

Today’s notoriously and unexpected poor employment data was the last thing credit markets needed and it has instigated a massive Treasury rally. Perhaps this is a bit of good news because when both are combined, is a potential high velocity tailwind to credit products from big government bond funds.  However, that’s “if” funds want to own credit product and hold it for an extended period of time and potentially wear a negative mark-to-market.

Having said that, the guy-in-the-corner suggests that at some point this weekend, you should put on your favorite song and sing along to it after many shots of tequila.  When you get to the point of feeling bad, look at yourself in a mirror and realize that you can begin to feel better with coffee, food, sleep and time but come Monday morning the business model you are used to is about to change.  Not adapt; not get better; rather change. The trends in the credit markets that we have seen over the last two quarters are showing no signs of abating, and in some degrees, worsening.

Now please let me introduce the moment you’ve been waiting for..

Syndicate Forecasts and Sound Bites from “The Best and the Brightest!”   

I am happy to report that once again the “QC” received unanimous participation from all 23 syndicate desks surveyed in today’s Best & Brightest polling.  That includes all of the top 22 ranked syndicate desks according to Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table that can be found on your terminals at “LEAG” + [GO] after which you select #201 (US Investment Grade Corporates).  Their cumulative underwriting percentage is 94.00% of YTD IG dollar debt underwriting which simply means they’re the ones with visibility.  But it’s not only about their volume forecasts, rather it’s also about their comments!  This core syndicate group does it best; they know best; so they’re the ones you WANT and NEED to hear from. 

*Please note that these are Investment Grade Corporates only. They do not include SSA issuance unless otherwise noted.

The question posed to the “Best and the Brightest” early this morning was:

“Good morning! So, this week the massive repricing in primary markets saw average NICs bust out to 54.23 bps; bid-to-covers shrank to an average 2.02x; today’s numbers were BAD; Obamanomics is quite the engine of growth and job creation, China’s slowdown is showing up in our data (ISM Milwaukee posted its worst manufacturing number since the dot com bubble). Spreads are wider on today’s data to start. Lower-for-longer might just be lower forever!  The two-part question for today is what are your volume forecasts for IG Corporate supply for BOTH next week AND October?  It’s going to be challenging to nail that down but it’s an important survey at this critical juncture.  Many thanks, Ron” 

……and here are their formidable responses:

To continue reading, please visit Mischler Financial Group’s market commentary section via this link

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MarketsMuse dip and dash department frequently prefers spotlighting altruists and do-gooders, including Agency-only execution firms in the brokerdealer sphere who, unlike “principal trading desks”, do not take the contra side to institutional customer orders as a means of making a profit; agency-only firms merely execute those client orders via the assortment of major exchanges and dark pools that traffic in equities and equity options. Today’s spotlight is on Dash Financial; the only position they purportedly take is a business model position by promoting the fact they act as a conflict-free agent only representing the best interest of their institutional brokerage clients in consideration for an agreed-upon commission.

BrokerDealer.com provides a global database of brokerdealers operating in more than three dozen countries throughout the free world.

The phrase “Best Execution” is therefore popular jargon among agency-only firms and implies that customers are receiving ‘the best” execution. What that means is a function of who you ask, particularly when considering the brokerdealer community has proven uniquely adept at capturing hidden revenue via rebate schemes in consideration for orders routed to those respective venues for execution. These schemes are aggressively promoted by the nearly two dozen major exchange and dark pools that facilitate trading in equities and equity options.

Courtesy of our friends at FierceFinance, today’s altruist of the week award goes to equity and options market agency brokerage Dash Financial, who asserts that being a broker in today’s fast-paced market is about being a technology expert and a consultant on clients’ execution objectives.

Below is the extract from FierceFinance’s interview with Dash Financial’s CMO:

David Karat, Dash Financial

“Everything is a tradeoff,” said David Karat, chief marketing officer for Dash Financial. “Every action you take to minimize fees, you risk losing liquidity, and for every technique to maximize liquidity it will cost you more money because it will be less relevant which venues you go to get that liquidity. It’s that balance we sit on top of and consult with our clients on.”

To that end, Dash Financial aims to help clients achieve what it calls on best net execution – execution that incorporates exchanges fees and all other associated costs.

“If there is liquidity in multiple places we are going to capture that liquidity based on the cheapest economics for the client,” Karat said. But Dash Financial has also designed its tracing architecture to couple its best execution algorithms with a focus on in-depth transparency, Karat said.

“We actually want you to see all the child orders, the millisecond time stamp of which destinations we are going to and what happened,” Karat said.

To continue reading the entire story, please visit MarketsMuse.com

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BrokerDealer.com blog update profiles what could be a watershed moment for the broker-dealer community: BDs can now ‘recommend’ to clients to buy, sell or hold exchange-traded-funds (ETFs) without having to c0mply with long-established Finra and SEC rules with regard to research.

This story is courtesy of MarketsMuse, the financial industry news curator, with extract below:

MarketsMuse ETF update profiles just-passed-by-Congress legislation that offers a sigh of relief for broker-dealers who aspire to frame ETF recommendations within the context of research (which might qualify them for ‘buyside research votes’), but have held back from issuing a buy, sell or hold recommendation for ETFs out of fear of Finra and/or SEC staffers sanctioning them.

All can guess that those lobbyists engaged by ETF issuers and sell-siders  who focus heavily on ETFs will be getting a hefty bonus in consideration for greasing the wheels and halls of Congress and helping brokerdealers creatively usurp Finra rules and regs when it comes to what is and what is not considered “research.” One group of folks not celebrating: top brass and salesman at Morningstar (read further)

The post BrokerDealers Can Now Recommend ETFs Compliance Free appeared first on BrokerDealer Blog.

MarketsMuse ETF update profiles a novel “payment-for-order-flow” approach on the part of ETF issuers who vie to whoo broker-dealers to promote their products to investors. Eaton Vance Corp. said Thursday it may help brokerages foot the bill to make its new type of actively managed exchange-traded products, called NextShares, available to their clients. Below extract is courtesy of Reuters’ Jessica Toonkel reporting

In an unprecedented move, Eaton Vance Corp will offer to help some brokerages pay their technology costs to make the fund company’s new breed of exchange-traded managed funds (ETMFs) available to investors, Tom Faust, Eaton’s chief executive officer, told Reuters this week. ETMFs are a hybrid between actively managed mutual funds and exchange-traded funds.

The Boston-based company also plans to pay brokerage firms a share of the revenues from the sale of the funds, which Faust hopes will be available by year-end.

BrokerDealer.com maintains the world’s largest database of broker-dealers and encompasses broker-dealer firms based in nearly 3 dozen countries

Big-name firms like Fidelity Investments and TD Ameritrade told Reuters they will not sell the funds until they see demand.

Helping to cover technology costs of distributors is new, but so are the Eaton Vance products, which require brokerages to take a new kind of order from investors, experts said.

“This is the first time I have ever heard of a firm offering to pay some brokerage costs for a new product,” said Ben Johnson, an ETF analyst at Morningstar.

He said the cost of gearing up to sell the product has been a sticking point for brokers. However, a number of executives at brokerage firms and industry consultants told Reuters that questions about whether there will be investor demand, and how they will get compensated to sell the new products, are even bigger issues that could keep them from selling the funds even with the Eaton Vance offer on the table.

Faust said figuring out the economic incentives and getting the systems up and running is top of mind for Eaton Vance.

“The biggest challenge we see at this stage of the game is getting broker dealers,” Faust said. “If we are looking to launch before the end of the year, we need the broker dealers to start making systems changes and otherwise preparing themselves to offer this to clients.”

Eight outside fund managers, including Mario J. Gabelli’s GAMCO Investors Inc., have licensed the right to sell NextShares. But large broker-dealers have not yet indicated that they’re taking the steps to offer them to financial advisers.

Investors will need to be informed by broker-dealers of the unique qualities of the funds when they trade, and they will place exchange orders in a way that differs from stocks or ETFs.

For the full story, please visit MarketsMuse.com

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Bowing to increasing pressure from regulators, law makers and law enforcement officials, Finra, the securities industry “watchdog” has launched its own probe into how retail brokers route customer orders to exchanges, according to recent reporting by the Wall Street Journal’s Scott Patterson.  In particular, through the use of “sweep letters” targeting various broker-dealers, Finra is purportedly focused on whether rebates associated with schemes that brokers receive when directing their orders to specific venues is a violation of conflict of interest rules, given that customers presume they are receiving best price execution when in fact, they often do not.

MarketsMuse, the securities industry blog that has long reported about payment-for-order-flow and the unsavory practice in which customer orders are “sold” by custodians and prime brokers to “preferenced liquidity providers,” who then trade against those customers and profit from price aberrations between multiple exchange venues and dark pools, takes pride in pioneering the coverage of this topic.

Now that main stream media journalists are beginning to “get it”,  a growing number of those following this story hope that WSJ’s Patterson and other journalists will shine light on the even more unsavory practice in which these same brokers imposing egregious fees on customers who wish to “step out” aka “trade away” and direct their orders to agency-only execution firms, whose role as agent is to objectively canvass the assortment of marketplaces and market-makers in order to secure truly better price executions for their institutional and investment advisory clients.

In a further sign that the current market structure could be cracking, one that has morphed away from a model based on centralization and transparency to disjointed fragmentation [a shift that has ironically been continuously supported Finra-sponsored government lobbies on behalf of that "regulatory authority's" senior constituents], Jeffrey Sprecher, the CEO of IntercontinentalExchange and owner of the New York Stock Exchange  appeared before a U.S. Senate hearing yesterday and called for the end of the now scrutinized fee and rebate system known as “maker-taker.” In what would seem like a walk-back given the NYSE’s own rebate scheme for brokerdealers as a means to attract order flow to that venue, Sprecher stated “Maker-Taker adds to the complexity and the appearance of conflicts of interest.”

The post Will BrokerDealers Get Busted For Promoting Maker-Taker Rebate Schemes? Finra Joins Investigation of Payment-For-Order Flow appeared first on BrokerDealer Blog.