The rules governing Wall Street generally force stockbrokers
to seek out the best prices for clients who pay them to buy and sell shares. Simple, yes?
But if there’s one thing we’ve learned about the street known as Wall,
things are never simple.
Case in point: in recent years, brokers have had another
enticement that can pull them in a different direction: payments from stock
exchanges in return for sending them business. The practice has attracted
criticism from several industry participants and former regulators who say the
so-called rebates that the exchanges pay Wall Street firms could give those
firms an incentive to profit at the expense of investors. Now a new study using
industry data says that the rebates could be costing mutual funds, pension
funds and ordinary investors as much as $5 billion a year.
The 75-page study, being released this week, was written by
Woodbine Associates, a financial consulting firm that does business with
players on all sides of the issue. Woodbine said the report was done
independently, without support from industry participants. Some financial firms criticized Woodbine’s
calculations and said the cost to investors was overblown, but did not dispute
that the potential for a conflict of interest exists….
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