United States In the United States, accepting PFOF is allowed only if no other
exchange is quoting a better price on the
National Market System. The broker must disclose to the client that it accepts PFOF. Transactions must be executed at the
best execution, which could mean the best price available or the speediest execution available.
Within organizations At the brokerage level, PFOF has fundamentally restructured how firms generate revenue. Rather than charging clients directly, brokers monetize the act of routing, essentially selling access to their customer base to market makers. In some cases, PFOF accounted for over 60% of a brokerage's revenue. Lexology Robinhood is the most extreme example (see below). On the market maker side, firms like Citadel Securities and Virtu Financial use a process called internalization where wholesalers typically execute orders in house in an internalization process, which fills orders with the firm's own inventory of stocks, allowing wholesalers to make money through
spreads. Essentially, instead of sending your order to a public exchange to find a counterparty, the market maker itself takes the other side of your trade, pocketing the spread.
Vladimir Tenev. His company became known for helping pioneer commission-free trading by relying on PFOF. In 2014, broker-dealer
Robinhood Markets introduced no-commission retail stock trades funded by PFOF. In 2021, transaction-based revenues (primarily PFOF) were responsible for over 77% of Robinhood's net revenue, with its $1.4 billion in transaction-based revenues split across options (49%), crypto assets (30%), and equities (21%). Other retail brokerages followed Robinhood's footsteps, and in 2020, PFOF received by stockbrokers totaled $2.5 billion. A 2014 investigation by the
United States Senate Homeland Security Permanent Subcommittee on Investigations, led by
Carl Levin, conducted hearings focused on the conflicts of interest inherent in PFOF. At the hearings, an executive for
TD Ameritrade said that it routes orders to wherever it can get the highest payment. In January 2021, after the
GameStop short squeeze, officials again questioned whether retail traders were getting the best possible prices on their orders. Certain platforms, such as
Public.com, announced that they would abandon PFOF and add Safety Labels to stocks rather than halt trading.
Disclosure requirements and regulations U.S. Securities and Exchange Commission rule 606(a), implemented in 2001, require all brokerage firms to make publicly available quarterly reports describing their order routing practices. This report discloses the "payment for order flow" practices. The report provides transparency in this area, allowing investors to understand how their orders are routed and executed, and to identify any potential conflicts of interest. Broker-dealers must disclose the nature of any compensation received in return for routing orders, as well as the overall process they use for order routing decisions. By mandating this disclosure, the reports mandated by 606(a) aim to enhance the integrity of the market and protect investor interests. The genesis of Rule 606(a) can be traced back to increased complexity in how orders were routed and executed, raising concerns about transparency and fairness, after the increased usage of
electronic trading platforms. In response, the SEC introduced Rule 606 (formerly Rule 11Ac1-6) under the Securities Exchange Act of 1934, aiming to address these concerns. The rule has undergone several amendments to keep pace with the evolving market structure, technological advancements, and trading practices. One of the significant updates to this rule was in 2018, where the SEC adopted amendments to enhance the transparency of order handling practices. These amendments expanded the scope of the original rule, leading to what is currently known as Rule 606(a). In December 2022, the SEC voted 3–2 to propose a new Rule 615 under Regulation NMS, known as the "order competition rule," which would have required most retail marketable orders to be exposed in brief open auctions before any wholesaler could execute them. The proposal was part of a broader four-rule equity market structure overhaul and was estimated by the SEC to potentially generate $1.5 billion in annual savings for retail investors, though that figure was disputed by industry commentators. The rule was ultimately withdrawn in 2025, under SEC Chair Paul Atkins, as part of a broader rollback of pending market structure proposals. By that time, market concentration had grown substantially: the top three wholesalers: Citadel Securities, Virtu Financial, and G1 Execution Services of which handled more than 80% of U.S. retail equity market orders, and the 12 largest U.S. brokerages collectively earned $3.8 billion in PFOF revenue in 2021 alone. In 2024, the SEC implemented new rules requiring better disclosure from brokers about their execution quality.
Canada In
Canada, PFOF is not allowed on Canadian listed securities, However, according to current
Canadian securities regulations, brokers can accept PFOF on non-Canadian listed securities.
Europe PFOF is effectively prohibited in the
United Kingdom, where the Financial Conduct Authority has said the practice is generally incompatible with inducements and best-execution rules. It is also banned in the
European Union. Although
Robinhood UK routes
UK customer trades to its U.S. affiliate, Robinhood Securities, LLC (RHS), for order execution, Robinhood UK says that RHS does not receive payment for order flow on UK customer orders and that Robinhood UK receives no remuneration for routing those orders. The
EU ban took formal legal effect on March 28, 2024, when amendments to the Markets in Financial Instruments Regulation (MiFIR) were published in the
Official Journal of the EU and became directly applicable across all
Member States. However, a grandfathering clause permits individual Member States to allow investment firms to continue receiving PFOF temporarily if they were operating before March 28, 2024. Germany, for instance, passed legislation allowing firms to continue receiving PFOF for domestic clients until June 30, 2026. Australia has also banned the practice, joining the UK, EU, and Canada in restricting PFOF over conflict-of-interest concerns, but it is not a blanket ban. ASIC Market Integrity Rules (Securities Markets) 2017 states that a market participant must not, directly or indirectly, make a cash payment to another person for their order flow if the cash payment leads to the net cost being less than the value of the reported price for the transaction. However, ASIC identified that its rules do not deal with
certain PFOF scenarios. These are arrangements between non-market participant intermediaries, and has proposed amendments to close this regulatory gap.
Other regions There is not a large amount of publicly available data covering PFOF within
stock exchanges in regions other than which are stated above. PFOF is primarily used in the United States. ==History==