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NPR's "The Indicator" had a recent episode on this: https://www.npr.org/transcripts/1106468243 https://www.npr.org/transcripts/1106468243 Part of it was an exp

NPR's "The Indicator" had a recent episode on this: https://www.npr.org/transcripts/1106468243 https://www.npr.org/transcripts/1106468243 Part of it was an explanation of what Payment For Order Flow (PFOF) is. They also had a few short comments by a researcher on the potential conflicts of interest. His opinion was that there are two, and one of them (ensuring customers get a fair price) is solvable but the other (brokerages having an incentive to steer customers toward trades with higher PFOF) is more problematic. It sounds like the SEC hasn't decided whether to ban PFOF or just require more disclosure about prices, which seems to match up with what that researcher said. (Also point of trivia from the NPR episode: PFOF was invented by Bernie Madoff.)

horsawlarway 4y ago
NPR's marketplace also touched on this over the last week, and does a decent job laying out the basics. Generally speaking - I think we're seeing the same dilemma here you see with digital advertising: The "customer" now pays no trading fees, but because they're no longer funding the activity through those fees, they start to become the product sold, and the actual customer getting catered to is now the brokerage paying the best PFOF... which they can likely do because they inflate their earnings by taking a larger cut, which means the original "customer" is still likely paying anyways, but they now have no recourse and no say in how they are bought and sold. I'm not at all a fan of the kind of perverse incentives that pop up when you have to trust an agent, and that agent is getting paid better by someone else to fuck you. We have fiduciary duty laws for a reason - this situation leads to bad places. For comparison - the vast majority of EU states have this banned as under their inducement to trade laws.
- anticristi 4y ago
  > For comparison - the vast majority of EU states have this banned as under their inducement to trade laws. Interesting. Didn't know about this. Can you send me a link to something like Wikipedia or an EU regulation?
  - horsawlarway 4y ago
    This was confirmed last year: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52021PC0727 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELE... I think a few of the states are still in limbo (last I heard was something about germany saying that they need to allow PFOF to prove PFOF is harmful first), but my understanding is most folks are treating it as banned. That said - I'm way outside my area of expertise here, and would welcome someone more knowledgeable to speak on it.

horsawlarway 4y ago

NPR's marketplace also touched on this over the last week, and does a decent job laying out the basics. Generally speaking - I think we're seeing the same dilemma here you see with digital advertising: The "customer" now pays no trading fees, but because they're no longer funding the activity through those fees, they start to become the product sold, and the actual customer getting catered to is now the brokerage paying the best PFOF... which they can likely do because they inflate their earnings by taking a larger cut, which means the original "customer" is still likely paying anyways, but they now have no recourse and no say in how they are bought and sold. I'm not at all a fan of the kind of perverse incentives that pop up when you have to trust an agent, and that agent is getting paid better by someone else to fuck you. We have fiduciary duty laws for a reason - this situation leads to bad places. For comparison - the vast majority of EU states have this banned as under their inducement to trade laws.

anticristi 4y ago
> For comparison - the vast majority of EU states have this banned as under their inducement to trade laws. Interesting. Didn't know about this. Can you send me a link to something like Wikipedia or an EU regulation?
- horsawlarway 4y ago
  This was confirmed last year: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52021PC0727 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELE... I think a few of the states are still in limbo (last I heard was something about germany saying that they need to allow PFOF to prove PFOF is harmful first), but my understanding is most folks are treating it as banned. That said - I'm way outside my area of expertise here, and would welcome someone more knowledgeable to speak on it.