SEC Charges Affiliated Advisers for Misrepresentations About Payment for Order Flow Arrangements

August 8th | 2020

The SEC recently settled a case where two affiliated registered investment advisers misled clients about the compensation received from an institutional payment for order flow arrangement. The two firms were advisers to, among other clients, a series of mutual funds and exchange-traded funds (ETFS). The firms falsely assured the boards of the mutual funds and the ETFs that the payment for order flow arrangements did not adversely affect execution prices.

But the firms in this case knew this was not true. In fact, the order suggests they knew the brokerage firms executing their client trades adjusted execution prices by $0.02 to $0.03 per share higher for client buy orders and lower for client sell orders, which allowed the brokerage firms to recoup their payments for order flow and generate profits.

In this case, again we see the SEC following through on its 2020 Examination Priorities, one of which was a close look at payment for order flow arrangements.

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