Senate Explores How High-Speed Trading Impacts Retail Investors

Sen. Carl Levin’s Senate investigative committee delved into concerns about conflicts of interest in the stock market Tuesday, with a focus on whether fees and payments offered by exchanges and others skewed how brokers route client orders.

The first panel at the Senate Permanent Subcommittee on Investigations featured IEX Group Inc. chief Brad Katsuyama, who says his trading venue diminishes conflicts of interest, and Robert Battalio, a finance professor at Notre Dame who recently published a paper arguing that retail brokers often route client orders in ways that boost payments they receive to the detriment of clients.

The hearing involved extremely complex issues, including details about how stock exchanges operate and what legal obligations brokers have to provide the so-called best execution for their clients.

“We are in the era of high-speed trading,” said Mr. Levin (D., Mich.). “I am troubled, as are many, by some of its hallmarks.” Mr. Levin said his chief concern is the “conflicts of interest” in the market.

Mr. Battalio, referring to his study, said retail brokers routinely route certain orders to venues that pay them the most for the orders. That results in long lines in the trading queue, with retail orders often sitting at the back of the queue, he said.

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