McKey

Appellant John McKey (hereinafter appellant) filed a lawsuit on behalf of himself and others similarly situated against respondent Charles Schwab & Co., Inc. (Schwab), alleging a breach of fiduciary duty and bad faith based on its receipt of “order flow payments” from wholesale securities dealers. Schwab’s demurrer to McKey’s first amended complaint was sustained without leave to amend and the action was dismissed. The basis for the trial court’s ruling was that the issues presented were preempted. We affirm the judgment (order of dismissal).

Factual and Procedural Background

1. The practice of order flow payments

Schwab is a national discount securities brokerage firm which appellant used as his broker for the buying and selling of securities. When a customer authorizes Schwab to buy or sell securities, Schwab directs or routes the order to an exchange, a wholesale securities dealer or a “market maker.” Schwab charges a commission to its customer for its services. In a practice which became prevalent in the 1960’s and now is widespread in the industry, the wholesale dealers or market makers may give monetary and nonmonetary incentives to brokers such as Schwab to…