June 17 - A senate panel hearing focuses on the issue of high frequency trading, and the conflicts of interest that it can create for brokers, brought to light in the New York Times best-selling book ''Flash Boys.'' Bobbi Rebell reports.
Call it the Flash Boys hearing. High Frequency trading- brought to light in the recent book by Michael Lewis- the hot topic at a Senate Panel hearing. At issue: conflicts of interest between brokerages and their customers. IEX's Brad Katsuyama- whose experiences were at the heart of "Flash Boys" explained how the maker taker system- where brokers get rebates from exchanges for sending them their orders- hurts investors. SOUNDBITE: BRAD KATSUYAMA, CEO, IEX (ENGLISH) SAYING: "Routing specifically with the goal of maximizing your rebate lowers the probability of getting filled and leads to adverse execution quality; worse execution quality for the clients order." SOUNDBITE: CARL LEVIN, U.S. SENATOR (ENGLISH) SAYING: "Does that create a conflict of interest?" SOUNDBITE: BRAD KATSUYAMA, CEO, IEX (ENGLISH) SAYING: "Yes." Notre Dame Professor Robert Battalio: SOUNDBITE: ROBERT BATTALIO, PROFESSOR, UNIVERSITY OF NOTRE DAME (ENGLISH) SAYING: "They are putting you at the back of the line at a price all the time. And so if the line doesn't fully exhaust, you go wanting. And is this, this happens- is this all stocks all the time no but measurable time? 10, 20 percent of the time certain stocks, yes." He cited data from Bernstein Research showing that one broker would have a 16 percent earnings decline if they eliminated the rebates and incentives. Senator Carl Levin questioned TD Ameritrade's Stephen Quirk: SOUNDBITE: CARL LEVIN, U.S. SENATOR (ENGLISH) SAYING: "You know how much you made just from payment for order flow and rebates?" SOUNDBITE: STEVEN QUIRK, SENIOR VICE PRESIDENT, TD AMERITRADE (ENGLISH) SAYING: "I can estimate it based on what we've discussed…would be about $80 million." Senators also asked how these issues may contribute to a lack of confidence in the markets. Thomas Farley, President of the New York Stock Exchange- SOUNDBITE: THOMAS FARLEY, PRESIDENT, NYSE GROUP (ENGLISH) SAYING: "Two areas where we are most concerned about the markets today: one is the appearance of conflict, primarily because we think it undermines confidence in the markets. And the second is undue cost and complexity in the markets that we have heard a lot about today. Maker taker gets to the heart of both of those issues and concerns that we have. And it's for those reasons that we have advocated eliminating maker taker in its entirety in the equity markets in this country." He added that a record amount- more than 40 percent- of the trading last week was off-exchange- meaning the prices were not able to be seen by the public.