Payment For Order Flow (PFOF)

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Payment For Order Flow (PFOF) is the practice by which retail brokers are paid by high-speed trading firms for their customers' orders. Another form of PFOF is rebates that stock exchanges pay for brokers and high-speed trading firms to send their resting orders to the exchange. Both of these practices create conflicts-of-interest where a broker’s financial interests are at odds with their duty of best execution. Order routing inducements such as these should be ended.

Core Issues

There are several problematic issues wrapped up in PFOF. These issues include:

  • Retail orders should not be unnecessarily routed off-exchange to a small set of internalizers. Doing so widens the spreads in the market by 25% for all participants. We believe in open competition for order flow on transparent venues.
  • Best execution standards have not maintained pace with technology and the evolution of order routing. These standards need to evolve into an order-by-order standard, rather than an aggregate performance standard.
  • Order routing disclosures should include execution quality and performance statistics.

Opportunities for advocacy

  • The SEC is considering taking action to address PFOF, exchange rebates and off-exchange trading. This is the most promising initiative and we want to support them in these efforts.
  • The House of Representatives Financial Services Committee has proposed a bill to ban PFOF. Contact your member of Congress using the form below to let them know you support this bill.

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