October 4, 2021
The success of Robinhood Markets Inc., and widespread adoption of zero or low-commission stock trading, have drawn attention to an established market practice—Payment for Order Flow (PFOF)—that, until recently, was little known beyond market participants and securities regulators. PFOF is a practice by which market makers pay retail broker-dealers for the opportunity to fulfill retail customer orders. In a recent article for Bloomberg Law, “Payment For Order Flow & Market Implications,” we discuss the legal framework for PFOF and recent criticisms of the practice from SEC Chairman Gary Gensler and others. We conclude with a discussion of key strategic and empirical questions for policy makers to answer as they consider PFOF’s future.