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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?
Said differently, how is PFOF more than just a way for market makers to win flow at a lower cost than price improvement?
As detailed by Doug Cifu, MM are indifferent between PI and PFOF, they care about all in price. The brokers determine the split.
If that's true, eliminating PFOF would a) potentially increase a MM's all-in price b) hurt brokers who can no longer accept PFOF c) benefit end users who are getting more PI Right?
they're fungible. PFOF gives receiving broker more flex, in terms of setting commissions.https://documentcloud.adobe.com/link/review?uri=urn:aaid:scds:US:c06378d9-0af0-445b-a38b-5d65f594f0ec …
Interestingly - I think the other question is around price discovery method. 1. What about midpoint matching services (Turquoise in the UK/EU for example) or 2 even leaving resting orders for price discovery at midpoint in the lot order book market
Is anyone insisting that it is? Maybe it isn’t. I do think it has become harder to discern true PI with the current maker/taker models. How is PI quantified for this comparison?
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