Massachusetts probes whether top U.S. retail brokerage firms getting illegal kickbacks

Massachusetts Secretary of State is investigating whether some of the nations top retail brokerage firms send customer buy and sell orders to exchanges that offer them brokers kickbacks. He is also looking to see this prevents ordinary investors from getting the best price for their trades. Galvin has asked for information from 7 of the biggest U.S. brokers including Fidelity, Charles Schwab & Co. Scottrade, TD Ameritrade, E-TRade Financial, Edward D. Jones and Morgan Stanley.

Traders have historically been paid for their orders. This is called rebates in the industry. Due to electronic trading the number of exchanges and trading sites grew and so did the trader rebates.

Galvin mentioned a New York Time article written by Yale Law School’s Jonathan Macey and Yale Chief Investment Officer David Swensen who said customers don’t get the best price when brokers choose exchanges for the rebates they offer.

It is not clear as to whether the Securities and Exchange Commission is also looking into this matter.

Jeffrey Newman represents whistleblowers.