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A man walks past a Charles Schwab investment branch in Chicago, Illinois, United States, May 11, 2016. REUTERS/Jim Young
(Reuters) - Charles Schwab customers cannot proceed as a class in a lawsuit alleging the retail brokerage prioritized profit over getting the best price on their trades, a federal judge has ruled.
U.S. District Judge Richard Seeborg's Wednesday ruling marks the latest setback for retail investors challenging the practice known as "payment for order flow," in which broker-dealers are paid to route trades to market makers.
The Schwab customers claimed that the brokerage gave priority to a $100 million a year deal with UBS Securities to handle 95% of Schwab's retail orders, despite claiming on its website that it worked to get the best price available for customers.
Seeborg ruled that the customers may have traded with Schwab based on unrelated factors, such as the price of commissions, making the claims unsuited to class treatment.
The decision comes as the U.S. Securities and Exchange Commission eyes rules that would regulate payment for order flow, which SEC Chair Gary Gensler has said raises conflict-of-interest issues.
Schwab spokesperson Mayura Hooper said on Thursday that the brokerage was pleased with the ruling.
"High-quality trade executions and transparency are a cornerstone of our commitment to putting clients first, and our combined firm has a strong track record that consistently reflects that commitment," Hooper said.
Attorneys for the plaintiffs did not immediately reply to a request for comment.
The 8th U.S. Circuit Court of Appeals issued a similar ruling earlier this year in a case against TD Ameritrade, which was separately sued before Schwab acquired the company.
And in June, online brokerage Robinhood asked an Oakland judge to preemptively deny class status in a lawsuit over order flow.
The case is Crago v. Charles Schwab & Co Inc et al., U.S. District Court, Northern District of California, No. 3:16-cv-03938.
For the plaintiffs: Lionel Glancy of Glancy Prongay & Murray, Lawrence Eagel of Bragar Eagel & Squire and others
For Schwab: Gilbert Serota of Arnold & Porter Kaye Scholer, Alex Kaplan of Sidley Austin and others.
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