The European Union has reached a provisional deal Thursday to introduce a general ban on payment for order flow (PFOF), which must be phased out by June 30, 2026.
PFOF is a practice whereby brokers, including Robinhood Markets (HOOD) and Charles Schwab (SCHW), transmit their client orders to high-frequency trading firms like Virtu Financial (VIRT) and Ken Griffin’s Citadel Securities, which pay the brokers for the right to exercise the trades. Retail traders have become fond of PFOF in recent years as it enables brokers to offer commission-free trading.
In the U.S., Securities and Exchange Commission Chair Gary Gensler said in June 2022 that he asked his staff to weigh changes that would require brokerages to route retail stock orders into competitive auctions. In September, though, the SEC reportedly said it may stop short of a full ban on PFOF.
And, in an effort to unify its financial markets, the EU member states and the European parliament agreed to establish so-called consolidated tapes, or centralized data fees for various assets that would combine market data from trading venues across the 27-member bloc.
Investors, in turn, would get access to up-to-date transaction information across the entire region for the first time.
“A more transparent and accessible financial market will improve the level-playing field between investors and strengthen the EU’s competitiveness at international level, to the benefit of businesses and citizens,” Elisabeth Svantesson, Swedish finance minister, said in a statement.
Policymakers also tentatively agreed to overhaul the rules on commodity derivatives trading.
More of PFOF and capital markets: