US options exchange officials have blasted the US Securities
and Exchange Commission (SEC) for its lack of oversight
regarding payment for order flow and order internalisation.
At the recent FIA conference in Boca Raton, exchange leaders
from Chicago Board Options Exchange (CBOE), International
Securities Exchange (ISE) and Philadelphia Stock Exchange
(PHLX) each strongly criticised the regulator for not doing
enough to stop the practice of payment for order flow, whereby
market makers pay brokers to send orders to them. Some
exchanges have facilitated the practice by providing
bookkeeping services for its market makers.
"I don't know what deal was made between the market makers
and brokers," said Sandy Frucher, PHLX chairman and ceo "All I
know is my role is to tax and send the money to somebody else.
That's called laundering. And I as a [self] regulator, should
not be there. I find the process to be outrageous and it
distinguishes our marketplace from the equity market place.
That is an area where the big regulator in Washington should
step in, because all they've done is wave their fingers."
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