Date: 4th May 2022

Retail trading must be simple, transparent, cost-efficient, and done in the best possible conditions for individual, non-professional (“retail”) investors. To achieve this, BETTER FINANCE puts forward a series of recommendations in relation to best execution of retail orders and payments for order flows (PFOF or, more adequately PFROF: Payment for retail order flow).

Payments for retail order flow (“PFOF” or more adequately “PFROF”) are commissions paid by financial firms to brokers for directing their retail clients’ orders (buy/sell) to them for execution. These financial firms execute the brokers’ retail clients’ orders, meaning they:

• Act as a buyer for clients offering to sell financial instruments, or
• Act as a seller for clients asking to buy financial instruments.

In such cases, brokers’ clients do not trade with other investors on a regulated market (such as the Paris or Warsaw stock exchanges), but instead enter bilateral trades, called over-the-counter (OTC). These trades are opaque (non-transparent) and differ from the market price (potentially from the best execution price as well).

PFOF create a revenue stream for brokers, allowing them to reduce upfront (explicit) fees or even charge zero commissions for trading on their platform. However, as BETTER FINANCE firmly believes there is no “free lunch”, this position paper presents our research and arguments against PFOF and internalisation for retail investors.