The Securities and Exchange Commission is investigating about a dozen brokerage firms - including Morgan Stanley, Merrill Lynch, Ameritrade, Charles Schwab and E*Trade Financial - on suspicion that they failed to secure the best available price for stocks they were trading for their customers, according to people who have been briefed on the inquiry.
At issue is the way the companies executed trades of Nasdaq-listed securities when the markets opened in the morning, a period of intense trading activity resulting from the backlog of orders since the market's close the previous day.
After examining trading data from the last four years, the investigation found evidence that trades were often processed in ways that favored the firms over their clients, these people said.
Securing the best price is one of the industry's critical obligations to investors. If the investigators' suspicions are confirmed, these practices are not likely to add up to significant costs for individual investors - the difference would be pennies a share traded - but in total they could represent substantial amounts of money for the brokers.
More important, the investigation opens another possible conflict of interest involving the big firms on Wall Street. In the last few years, the financial industry has been jolted by a series of scandals over practices that rewarded company insiders at the expense of ordinary investors.
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