The Securities and Exchange Commission (search) is investigating about a dozen brokerage firms that may have failed to obtain the best price for stocks traded for customers, a source familiar with the matter said on Monday.

"The behavior was uncovered by the Office of Compliance, Inspections and Examinations (search), which sent letters of deficiency to about a dozen firms in the last two weeks," the source said.

"The Office of Compliance also made referrals to the SEC's enforcement division to investigate," the source said on condition of anonymity.

The amount of money investors lost was small, the source told Reuters, but the SEC was concerned the way best execution was carried out.

The New York Times reported the probe in its Monday edition, saying brokers under scrutiny include Morgan Stanley (MWD), Merrill Lynch (MER), Ameritrade Holdings , Charles Schwab (SCH) and E+Trade Financial Corp. (ETRD), the report said.

Regulators are looking specifically at the way these companies traded Nasdaq-listed stocks during early morning trade, the Times said.

Brokerage stocks fell sharply in Monday trade, led by Ameritrade's 5.5 percent decline to $13.10 a share. E+Trade shares fell 3.6 percent to $12.72, while Schwab stock slipped 2.1 percent to $9.52 a share.

A Merrill spokesman declined to comment, citing the firm's policy of not commenting on regulatory issues. Ameritrade declined to comment, while an E+Trade representative declined immediate comment.

Fox-Pitt Kelton analyst David Trone told clients in a note Monday that brokers would probably pay fines if wrongdoing is uncovered. The penalties may be meaningful for the smaller firms.

"Restitution is less likely due to logistical challenges of connecting damages to specific investors," Trone said. "Our initial assumption is that fine amounts would not be worrisome for the larger firms, but could result in a meaningful charge for the smaller firms."

After examining trading data from the last four years, the investigation found evidence that trades were often processed in ways that favored the firms over their clients, the Times said, citing unnamed sources.

The newspaper's sources said that regulators are examining two methods of executing trades known as internalization and payment for order flow.

Internalization is when a broker executes an order from securities in its own account rather than from a market order. Payment for order flow occurs when retail brokers send aggregated small orders to market makers.

In some instances, some stock exchanges or market makers will pay for routing the order to them.