Some of the UK's leading stockbrokers are participating in commission deals on international share trades that are seemingly to face scrutiny by the City regulator, over concerns regarding conflicts of interest.
Online brokers Hargreaves Lansdown and Selftrade have entered into arrangements to receive payments from market maker Winterflood Securities worth up to about one per cent of the price of non-UK share trades. Market manufacturers are the corporations that brokers use to buy or sell shares for their purchasers. These revenues, that are additionally to the dealing commission of about £12 charged to the investor, might be value £40 to £64 on a £5,000 trade.
The deals are struck before a potential clampdown on payments from market manufacturers by the Financial Services Authority (FSA), amid fears that they might lead to worse prices for investors. An FSA discussion paper earlier this year said that so-referred to as payments for order flow (PFOF) "may encourage the broker to urge the most effective payment from a market maker, instead of the best price for its shopper. It is straightforward to determine how such arrangements give rise to a significant conflict of interest".
Hargreaves Lansdown said that Winterflood pays it up to 75 per cent of the foreign exchange charge levied on investors' non-UK equity trades. But the broker defended the arrangement, saying that Winterflood was the only market maker offering online dealing for sterling investors, and also the payments were disclosed to shoppers. It conjointly disputed that the deal constituted a PFOF.
"We tend to're not obtaining a kickback," said chief government Ian Gorham. "The truth that a third party makes a deduction (for the FX transaction) and pays (part of) it back to us is just an administrative arrangement."
Selftrade has notified clients that it can be paid similar commissions by Winterflood from September 5. Barclays Stockbrokers and Halifax Share Dealing said they are doing not receive commission on FX transactions for international share trades. TD Waterhouse has its own foreign currency accounts.
Online brokers Hargreaves Lansdown and Selftrade have entered into arrangements to receive payments from market maker Winterflood Securities worth up to about one per cent of the price of non-UK share trades. Market manufacturers are the corporations that brokers use to buy or sell shares for their purchasers. These revenues, that are additionally to the dealing commission of about £12 charged to the investor, might be value £40 to £64 on a £5,000 trade.
The deals are struck before a potential clampdown on payments from market manufacturers by the Financial Services Authority (FSA), amid fears that they might lead to worse prices for investors. An FSA discussion paper earlier this year said that so-referred to as payments for order flow (PFOF) "may encourage the broker to urge the most effective payment from a market maker, instead of the best price for its shopper. It is straightforward to determine how such arrangements give rise to a significant conflict of interest".
Hargreaves Lansdown said that Winterflood pays it up to 75 per cent of the foreign exchange charge levied on investors' non-UK equity trades. But the broker defended the arrangement, saying that Winterflood was the only market maker offering online dealing for sterling investors, and also the payments were disclosed to shoppers. It conjointly disputed that the deal constituted a PFOF.
"We tend to're not obtaining a kickback," said chief government Ian Gorham. "The truth that a third party makes a deduction (for the FX transaction) and pays (part of) it back to us is just an administrative arrangement."
Selftrade has notified clients that it can be paid similar commissions by Winterflood from September 5. Barclays Stockbrokers and Halifax Share Dealing said they are doing not receive commission on FX transactions for international share trades. TD Waterhouse has its own foreign currency accounts.
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