June 26, 2021
The issue with \"PFOF\" (Payment for order flow) isn't just about worse execution, it's the potential for front-running. Maybe there's some overlap between the two. Imagine a scenario where I put in a GTC limit order to sell my AAPL shares at $150/share when it was trading at $148. Now imagine if the mkt price of AAPL stock got close to but didn't breach my limit price, perhaps to $149.80 and the principal trading firm that \"bought\" my order flow decides to either sell their own longs or initiates a new short at that 149.80 level knowing their max loss or lost upside is $.20 since they can use my order to offset their action if the stock continued to rally. This is frontrunning and should not be allowed under current law. \"PFOF\" should never be sold to principal trading firms and only to segregated market-makers or generalists who do not take other proprietary positions in that stock.