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Financial services professionals challenge Security and Exchange Commissionfocuses on payments for order flow, according to Dispatches.

Last week, the chairman of the SEC Gary Gensler said he had told commission staff to investigate ways to ‘mitigate’ conflicts of interest in the system in which brokerages make money by routing their clients’ orders to some market makers, reports Bloomberg.

Gensler’s guidance comes at a time when payments for order flow are playing an increasingly important role in the financial services industry. This is because brokerages, including Charles Schwab, E*Commerce (which has since been acquired by Morgan Stanley), Loyalty investments, TD Ameritrade and Wells Fargo moved to commission-free trading, largely thanks to the success of the zero-commission pioneer Robin Hood, as reported. Businesses began looking for other ways to collect business revenue.

Gensler suggested, as part of the proposed changes, that staff consider encouraging trades that bypass market makers, with orders going directly to exchanges, according to the news service.

The SEC chairman, however, declined to rule out a complete ban on the practice. It marks a reversal from last August, when he raised the possibility and noted that the practice was already banned in the UK, Canada and Australia, as reported.

According to Gensler, the changes are necessary to ensure that investors benefit from a system that is “as fair and competitive as possible”.

But Larry TabDirector of Market Structure Research at Bloomberg intelligencesaid evidence suggests the system means retail investors get a better deal than institutional traders, according to the news service.

Changing the system could actually hurt retail investors, said Mike Baileyresearch director at a wealth management firm FBB Capital Partnersaccording to Bloomberg.

“If the SEC kills the pay-to-order stream, then yes, commissions are going up and friction is coming back into some part of the capital markets,” he told Bloomberg.

Chris Grisantichief equity strategist at MAY Capital Managementmeanwhile, thinks brokers won’t risk tarnishing their image by charging commissions again – but will try to make their money by charging fees elsewhere, writes Bloomberg.

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