Amid the slew of regulatory and structural proposals underway in the market, the institutional buy-side in the U.S. sees the proposed changes to the Payments for Order Flow (PFOF) regime as the most crucial, according to a report by the Greenwich Coalition.
In its latest study examining the buy-side perspective on the biggest regulatory and market structure debates expected in the coming year, Coalition found that 40% of institutional equity traders in the United States designate the PFOF as the one to be monitored.
Payment for order flow (PFOF) is a form of compensation that comes in the form of the transfer of a portion of trading profits from market makers to brokerage houses in exchange for executing orders of different parties with them.
It has proven to be a controversial topic globally, as many argue that this order flow – much of which comes from the growing retail segment – should instead be won by posting competitive quotes.
Late last year, the U.S. Securities and Exchanges Commission (SEC) confirmed that it would explore potential changes to the PFOF regime due to the system’s inherent conflicts of interest.
Across the pond, the European Commission decided to ban PFOF for high-frequency traders organized as systematic internalisers (SIs) in November as part of its union update. capital markets, emphasizing instead that to win this business, companies must instead publish competitive pre-trades. quotations in order to standardize the rules of the game.
“Depending on which camp you’re on, you can see PFOF either as a well-regulated part of the commercial landscape or as part of an insidious system rigged against all but the biggest players,” says analyst Shane Swanson. Principal at Coalition Greenwich. market structure and technology, and author of the report.