Unfair Exchange: The State of America's Stock Markets

SEC Commissioner Robert Jackson cited research by finance professors Robert Battalio and Shane Corwin in a Sept. 19 speech he gave at George Mason University, Arlington, Virginia.

When a broker places an order on behalf of a customer, we expect the broker to send the order to the exchange that is likely to get the best price for their customers. But to nobody’s surprise, research shows that brokers very often send their orders to the exchange that gives the broker the biggest rebate. In the years since this practice was first brought to light, little has been done to bring transparency to the effects of these payments. It’s time for that to change.

Their research, published in "Can Brokers Have It All? On the Relation between Make‐Take Fees and Limit Order Execution Quality,"  looks at retail brokers who seemingly route orders to maximize order flow payments by selling market orders and sending limit orders to venues paying large liquidity rebates.