Commission paid by market makers to brokers such as Hargreaves Lansdown and Selftrade on international share trades are likely to come under scrutiny by the FSA following conflict of interest concerns.
Hargreaves Lansdown and Selftrade are to receive payments from Winterflood Securities worth up to about 1 per cent of the value of non-UK share trades, the Financial Times reports.
The companies use Winterflood to buy or sell shares for their clients. The FT says these revenues, paid on top of dealing commission charged to investors, could be worth between £40 and £64 on a £5,000 trade.
The regulator said earlier this year that with so-called payments for order flow “it is easy to see how such arrangements give rise to a significant conflict of interest” as brokers could look to get the best payment from a market maker, rather than the best price for the client.
Hargreaves Lansdown told the paper it receives up to 75 per cent of the foreign exchange charge levied on investors’ non-UK equity trades from Winterflood.
But Hargreaves Lansdown chief executive Ian Gorham says: “We are not getting a kickback. The fact 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 already notified clients Winterflood will pay it similar levels of commission from September 5.