Preparing to appear before Senate subcommittee, TD Ameritrade discloses order-routing revenue

TD Ameritrade Holding Corporation today disclosed the revenues it receives from the companies to which it routes trade orders.

The Omaha, Neb.-based company will disclose this revenue on a quarterly basis, beginning in July.

TD earned order-routing revenue of $236 million, $184 million and $185 million for fiscal years 2013, 2012 and 2011, respectively. Less than half its 2013 revenue sharing came from stock transactions.

Such routing is part of its business model, according to a prepared statement from TD. Representatives of the firm will speak on this topic and other market- structure-related issues when they appear before the Senates Permanent Subcommittee on Investigations Tuesday. TD did not disclose who is appearing before the subcommittee. See: What Tom Bradley’s 25-year reign at TD Ameritrade says about the RIA business.

What the company will say is that it employs sophisticated order-routing technology and processes to help it meet its obligations to seek best execution for client orders. The key point TD will apparently stress in its Senate appearance, according to Fred Tomczyk in a prepared statement, is that the he system is flexible and therefore a win for all parties involved since its flexibility lies in its ability to route to several destinations in an effort to seek best execution quality. Clients also have the option to choose from a list of direct-routing destinations. See: Fred Tomczyk shows RIAs at TD’s 'Elite’ event his drive to beat rivals — by carefully picking his spots.

Promise to deliver

“Many market destinations are in the business of making markets. They provide liquidity, and revenue sharing is part of their business model,” Tomczyk said in the statement. See: TD Ameritrade chief calls RIA growth a significant factor in 44% 4Q surge.

“There exist today comprehensive regulations and oversight, disclosure and industry competition, as well as the many checks and balances we have implemented over the years, to ensure that we remain focused on satisfying our obligation to seek best execution on behalf of our clients. Without their trust and satisfaction we wouldn’t have a business, and we could not maintain either of them if we didn’t deliver on our promises to the best of our abilities.”

Tomczyk added: “The facts show that execution quality for retail investors has never been better. Costs are lower than ever, spreads have narrowed significantly, liquidity has increased, and execution speed has improved. But it can be better. Just as we are continually seeking to improve our client experience, we as an industry should continue to examine ways in which we can improve our nation’s market structure without compromising the many improvements that currently exist. We have long been a part of conversations around market structure, representing one of the largest bases of retail investors in the country, and we will continue to do so.” See: Analysts issue opinions on Merrill Lynch and TD Ameritrade based on new information.