[taway789aaa6]

> PFOF and excessive off-exchange trading persist because so many trading platforms rely on the revenue it generates, essentially productizing their clients. Defenders of PFOF have claimed that retail brokers who route to high-speed traders (in exchange for PFOF) provide better price execution for investors and that it’s a net positive, despite creating an inherent misalignment between these platforms and their customers, and despite public evidence to the contrary. Leaning on the flawed argument that they categorically provide retail customers with best price execution quality, there is little by way of self-regulation to foment change or prevent applications designed to optimize transaction volume (i.e. speculation and day trading) and risky activity (i.e. margin and options trading). Further, their ability to claim best execution is part of the flaw of the system, as even within the current structure better outcomes are possible on an order-by-order, and aggregated basis.

https://advocacy.urvin.finance/advocacy/we-the-investors-pfo...

Not a win win.

[gruez]

>and despite public evidence to the contrary

Sounds serious, I wonder what it is...

>"410 The author deleted this Medium story".

doesn't look promising. The rest of the paragraph fails to state any concrete harm, instead focusing on abstract issues like "misalignment between these platforms and their customers", and "little by way of self-regulation ".

[Anon1096]

There is nothing in that statement that actually shows negative effects of PFOF.

> creating an inherent misalignment between these platforms and their customers

is just speculative harm, and as to the other part about preventing risky trading - this is literally what Robinhood et al customers want!

Meanwhile PFOF actually does have proven benefits in that it reduces spread for retail investors.

[Ntrails]

> Meanwhile PFOF actually does have proven benefits in that it reduces spread for retail investors.

To be fair, some of that is because its existence changes the pool of people trading on lit and thus increases spreads there. There are systemic effects that are a function of pfof that make it look better, and ofc there are a wide range of actors of varying quality...

[highwaylights]

This.

It seems very much like that bogus stat that HR departments were peddling 20 years ago about how they only hire the top X% of people because they reject (100-X)% applicants - it tells you nothing about the quality in the gap.

These systems don't have to actively attempt to front-run you or pro-actively make bad trades, they can just optimize for deal flow, which is enough to cause the customer to get a sub-optimal price.

[freeone3000]

You’re getting a price as good or better than if you had routed it through the backing exchange directly. National Bid or Best Offer continues to be the rule.

[wrsh07]

I think you're only highlighting my point that it's woefully misunderstood

The fact that 70k people signed a statement making a bunch of strong but vapid claims is umm telling

Let's take a longer money stuff excerpt:

>>> Some retail brokerages seem to make a lot of their money from payment for order flow. Others make less. Some big retail brokerages do not accept any payment for order flow at all: They still use this system (routing their orders to market makers), but they take 100% of the value in the form of price improvement for their customers instead of payments for themselves. Intuitively, you might think that the brokerages that get a lot of PFOF would get worse price improvement.

But, nope! Here is Bill Alpert in Barron’s:

Critics of retail brokers like Robinhood Markets condemn those companies for routing customers’ orders to market makers like Citadel Securities in exchange for payments. ...

The suspicion is that greater payments to brokers must be offset by less favorable execution prices. But that isn’t what a new study finds.

In an Aug. 13 working paper, five finance professors analyzed 85,000 stock trades they made through five leading retail brokers. They did get significantly different pricing through different brokers for identical orders to buy or sell at the current market price.

But their best pricing came from a broker that takes payment for order flow, namely TD Ameritrade, now a unit of Charles Schwab. Fidelity, which takes no order payments, got worse prices on the professors’ trades than did TD Ameritrade. And its prices were no better than those from the E*Trade unit of Morgan Stanley, which does take payments. Robinhood, which used revenue from order-flow payments to subsidize the industry’s first commission-free trading, delivered middle-of-the-pack pricing. Interactive Brokers ranked last in the execution pricing of the professors’ orders.

That's from https://news.bloomberglaw.com/mergers-and-acquisitions/matt-...

Excerpted Barron's: https://www.barrons.com/articles/payment-for-order-flow-sec-...

Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239