A European Union proposal to ban payment-for-order flow (PFOF) on stock markets could be ditched if the practice came under stricter conditions, an EU paper authored by France showed on Monday.
PFOF drew scrutiny last year when an army of retail investors flocked to “meme stocks” on Wall Street, using stockbrokers who touted for business by charging zero fees, making money by sending the orders to a specific platform for execution.
This triggered heavier European retail interest in shares and prompted regulators to take a closer look at the practice.
The EU’s executive European Commission has proposed banning PFOF, saying investors could miss better prices elsewhere.
Germany and some other states want PFOF to continue, while “a clear majority” back the commission’s plans, the paper said.
“Thus, in the spirit of reaching a compromise and with the first order objective of serving the interests of retail investors and democratizing their access to financial markets, we would like to highlight four essential (and additional) conditions under which PFOF could be authorized and supervised in the EU,” the paper said.
Platforms which pay commission to brokers should be required to execute each retail order at a better price than the best price going.
Retail brokers receiving commission should open up the execution of their orders to everyone willing to pay a commission. Brokers would have to show customers how they obtained the best price for their order.
EU securities watchdog ESMA should check that national regulators were applying these conditions, the paper said.
It marks a shift in France’s position from last year, when Robert Ophele, then chair of its securities watchdog AMF, called for a ban on PFOF. Ophele has left after his term came to an end.
EU states are finalising their position on PFOF, which is part of a draft law reforming EU trading rules known as MiFID II. The European Parliament has joint say, meaning further changes are likely before a final version is approved into law.
(Reporting by Huw Jones, editing by Ed Osmond)