‘It’s normal, there must be some who support change and some who don’t.’
The United States Securities and Exchange Commission (SEC) plans to overhaul Wall Street's stock investment rules by eliminating the practice of flow -to -order (PFOF) brokerage.
This was highlighted by SEC chairman Gary Gensler, in an effort to protect investors and traders who use commission-free brokerage firms.
In other words, brokerage firms have to compete directly to get the best price in executing orders from customers without profiting from the stock.
What is Payment Flow To Order (PFOF)?
PFOF is the compensation or benefit received by a brokerage firm in managing orders during the execution of investments such as stocks.
For the facilitator, it is a method of transferring a portion of the investment profits to the broker who has executed his client’s order.
This practice has been criticized by several parties including the SEC as it indirectly creates unfair or opportunistic conditions against traders and investors.
Even PFOF has been banned in Canada, the United Kingdom (UK) and Australia.
What is the market outlook?
Even so, Gensler's plan received mixed reactions from various quarters.
Investors and traders certainly welcomed the plan, which would open a new chapter after decades of Wall Street, but on the financial industry side the opposite is true.
Among the arguments put forward is that the elimination of such practices will make it difficult for brokerages, especially brokerage firms without commissions in providing more services to investors.
In the meantime, it is still unknown the timeline for the practice to be abolished because the official proposal will be submitted possibly as early as October.
According to Gensler, the public can vote once the official proposal is submitted later in determining whether the PFOF practice will be maintained or not.
He added that if the PFOF is maintained, then the SEC will issue a mandate to market makers to disclose data on the fees earned by the firm and its trading hours.
