Explainer - SEC eyes PFOF reforms for stock market. What is PFOF?

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Explainer - SEC eyes PFOF reforms for stock market. What is PFOF?
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NEW YORK : The head of the U.S. Securities and Exchange Commission on Wednesday said the agency may propose the most wide-ranging reforms to the equities market in nearly 20 years. The proposed rules would rein in a practice called payment for order flow (PFOF), which is banned in Canada, the UK, and Australia.

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Retail brokerages send most customer orders to wholesale brokers, rather than to exchanges, because wholesalers generally execute orders at a slightly better price than is available on exchanges. Most retail brokers also accept rebates, or payments, from wholesalers in return for customer orders.

Some retail brokerages, including Charles Schwab Corp and Robinhood Markets Inc, accept PFOF, while others, including Fidelity and Public.com, do not. Gensler said many firms that do not accept PFOF still offer commission-free trading. He also suggested reducing the time increments for disclosure of the practice.The SEC is looking into whether PFOF creates an incentive for brokers to route customer orders to places that maximize their own revenue rather than one that would get the customers the best execution.

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