Retail trading must be simple, transparent, cost-efficient, and done in the best possible conditions for individual, non-professional (“retail”) investors.
To achieve this, BETTER FINANCE puts forward a
series of recommendations in relation to best execution of retail orders
and payments for order flows (PFOF or, more adequately PFROF: Payment
for retail order flow).
Payments for retail order flow (“PFOF” or more adequately “PFROF”)
are commissions paid by financial firms to brokers for directing their
retail clients’ orders (buy/sell) to them for execution. These financial
firms execute the brokers’ retail clients’ orders, meaning they:
• Act as a buyer for clients offering to sell financial instruments, or
• Act as a seller for clients asking to buy financial instruments.
In such cases, brokers’ clients do not trade with other investors on a
regulated market (such as the Paris or Warsaw stock exchanges), but
instead enter bilateral trades, called over-the-counter (OTC). These
trades are opaque (non-transparent and differ from the market price
(potentially from the best execution price as well).
PFOF create a revenue stream for brokers, allowing them to reduce
upfront (explicit) fees or even charge zero commissions for trading on
their platform. However, as BETTER FINANCE firmly believes there is no
“free lunch”, this position paper presents our research and arguments
against PFOF and internalisation for retail investors.
full paper
Better Finance
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