Said differently, how is PFOF more than just a way for market makers to win flow at a lower cost than price improvement?
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Potentially stupid market structure question of the day: If PFOF were eliminated, wouldn't market makers be forced to give price improvement to win flow? If I pay $.50 for an order w/PFOF and $1 w/PI, if PFOF weren't an option I could still pay the $1 to win flow, right?
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Retail brokers relaint on PFOF would have to abandon zero commissions, so will get less trading but this remaining trading would get more PI. My guess is RH would get creative with structuring new "non zero" commissions to minimize psychological effect, esp. on small tickets
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Charge customers commissions, people get mad Accept payment for order flow, people get mad High compliance costs, bad Zero interest rates, bad Seems like brokerages of any kind are a terrible business to be in right now.
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How about broker gets PI. But then just give customer NBBO by law. Pocket spread.
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OR just internalize it all.
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either way the mm is paying the $1, it's up to the broker how that's split out: better price, cheaper comm, profit to the broker etc
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