(Reuters) - The Securities and Exchange Commission has sent out subpoenas and demands for records to brokerage companies as part of a probe into how retail customers' orders are routed, executed and filled, according to several people familiar with the matter.

The SEC's enforcement division is investigating whether retail customers are receiving the best price and the most efficient execution for their trades, these people said. The regulator is also asking about the payments that some retail brokers receive from exchanges and trading firms in exchange for directing customer orders to those platforms.

It's unclear which firms received the requests, though the people familiar with the matter said they were distributed widely. Some of the biggest retail brokerage companies are Charles Schwab Corp., TD Ameritrade Holding, Fidelity Investments' Fidelity Brokerage Services and E*Trade Financial Corp, which can get paid $100 million a year or more for selling their orders.

The SEC's investigation comes as public debate has intensified over rules governing payment-for-order flow and other market structure issues that may favor high-frequency traders over retail investors, spurred in part by Michael Lewis's "Flash Boys," a book that explores the rise and potential abuses of computer-driven high-speed trading.

Andrew Ceresney, the director of the SEC's enforcement division, declined to comment specifically on the recent flurry of data requests in an interview last week, but confirmed the SEC is generally looking at issues surrounding retail order flow.

"That is obviously an ongoing investigation," Ceresney said in the interview. "I will say broadly, we are looking for abuses in this area."

SEC rules allow the practice of paying for order flow, as long as rebates are properly disclosed and rules about getting the best price in the shortest possible time are followed. The SEC has taken enforcement actions in recent years against firms including Scottrade and Morgan Stanley for improper disclosures and other violations regarding their routing of retail orders for securities.

The SEC is also asking the firms for evidence that they are engaging in a "rigorous review" of their routing practices to ensure they are achieving best execution, one of the people familiar with the probe said.

Best execution is an anti-fraud measure in federal law that requires brokerages to, among other things, achieve the best price in the shortest possible time frame.

The SEC is not the only authority looking into this activity. In August 2013, E*Trade disclosed in regulatory filings that the Financial Industry Regulatory Authority (FINRA), which self-polices brokerages, was probing how it prices and routes orders to one of its affiliates.

It is unclear whether the SEC's requests for information will result in any enforcement actions.

The SEC may potentially find some violations surrounding the quality of the disclosures brokerages are required to make concerning best execution, one of the people familiar with the matter said.

For instance, brokerages may be promising to deliver best execution, but may then be routing some of the orders to anonymous trading venues known as "dark pools" where there is a risk that they may not be getting best execution, the person said.

SEC rules require brokerages to submit quarterly reports detailing their payment-for-order-flow arrangements, as well as monthly reports on best execution.

In addition, brokerages are required to make accurate statements to investors about their policies in account statements and account opening documents.

ACADEMIC STUDY

The SEC's inquiry is seeking information from firms both through traditional subpoenas, and through so-called 17a requests, which refer to a provision in federal securities laws that requires brokerages and other firms to maintain certain books and records. The requests were sent out earlier this year, one person said.

Researchers from the University of Notre Dame and the business school at Indiana University raised similar questions when they released in late 2013 a study suggesting that payment-for-order-flow practices may be creating conflicts of interest that harm retail investors.

That study looked at four discount brokerages that accept payments for order flow - TD Ameritrade, E*Trade, Scottrade and Fidelity Investments.

It found that the firms tend to route "limit orders" to the exchanges that pay the highest rebate fees, a potential conflict of interest that at times can lead to trades not getting executed at the best possible times. A limit order instructs the broker to buy or sell a stock at a specific price, or better.

Spokesmen for E*Trade, Scottrade and Charles Schwab declined to comment about the SEC's investigation or the study's findings. In response to the study, a spokesman for Fidelity said that best execution is its "highest priority" for its customers.

All of the firms routinely say they are complying with federal laws to get their customers the best execution.

Earlier this year, FINRA announced that it plans to make best execution issues a priority during 2014 exams of firms, and had launched new surveillance patterns to monitor for compliance.

"We are looking very closely at the firms' practices to ensure compliance with their best execution obligations with respect to limit orders in equity securities," FINRA spokesman George Smaragdis said.

The SEC several years ago brought high-profile cases against some firms for best execution violations. In one 2008 case, the SEC said Scottrade misrepresented its policies for how it routed orders and also failed to conduct a rigorous review to ensure its customers were receiving best execution. In 2007, the SEC found that Morgan Stanley delayed executing some retail orders and embedded undisclosed mark-ups and mark-downs in others. Both firms settled the charges and paid fines.

CASH FEES

In the United States, market makers such as KCG Holdings, Citadel LLC, Citigroup and UBS AG typically pay cash fees in the neighborhood of 30 cents per hundred shares for orders. Many U.S. stock exchanges use a maker-taker payment model that offers similarly-priced rebates to brokers for providing liquidity, and charges fees if liquidity is taken away.

Some policymakers at the SEC have started to question whether it may be time to make some changes concerning how brokerages are compensated for order flow.

In a speech in April, SEC Democratic Commissioner Luis Aguilar called for launching a temporary program to test the effects of banning the maker-taker model, saying he fears it may lead to conflicts that hurt best execution.

Schwab said last month it expects to earn about $100 million this year from selling client orders. E*Trade collected about $25 million in the first quarter for sending orders to certain exchanges and traders, it said on a conference call in April.

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