Deep-Discount Brokers Probed by Regulators
WASHINGTON — The Securities and Exchange Commission is conducting an informal review of deep-discount brokerages’ practices and procedures, according to letters sent to brokers.
The review, launched in September, focuses on discounters’ marketing and advertising practices, what they tell investors and the way they handle and place their orders.
The requests, dated Sept. 2, asked the discounters to submit copies of written advertising and other marketing materials, including brochures and pamphlets dating back six months.
“The Division of Market Regulation is conducting an informal review of discount brokerage practices and procedures,†the letter says. “In this regard, the division would like to review the marketing practices, account-opening procedures and order-handling practices of discount brokerage firms.â€
Fewer than 10 discount brokerages received the letters, according to people familiar with the case. Deep-discount brokerages that make markets in Nasdaq Stock Market stocks and are specialists on the New York Stock Exchange are being closely scrutinized, they said.
National Discount Brokers said it received the letter and is complying with the review. National Discount is controlled by principals of the New York specialist and market-making firm Spear, Leeds & Kellogg.
An official at Quick & Reilly Group Inc. said the firm did not receive the request. Officials at other large discount brokerages, including Brown & Co. Securities Corp., Olde Discount Corp. and Charles Schwab Corp., were not available to comment.
The review is separate from a Justice Department probe of Nasdaq Stock Market dealers made public in late October.
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