Brokerage to halt controversial order flow practice

(Reuters) – Brokerage said on Monday it would no longer route orders to market makers to execute trades and instead send them directly to exchanges, in an attempt to remove a potential conflict of interest with its customers.

The move comes a week after a social media-driven trading frenzy on Wall Street in heavily shorted shares of companies such as GameStop Corp.

“We will stop participating in the practice of PFOF (payment for order flow) and instead introduce a tipping feature on trades … Trades will remain commission-free and tipping is entirely optional,” said in a blog post here on Monday.

PFOF is a practice by which wholesale market makers pay for the first crack at executing a stock order. They then execute the transaction, either internally, in other off-exchange trading venues, or on an exchange.

The practice has drawn scrutiny from regulators globally as it creates an incentive for brokers to send orders to whoever pays the most, rather than the place that might get the best outcome for customers.

“If the SEC/government wants to ‘fix the plumbing’ the number one thing they should do is ban Payment for Order Flow,” venture capitalist Bill Gurley said here on Twitter on Sunday.

The PFOF practice is a growing revenue stream in an ultra-competitive industry and Menlo Park, California-based brokerage Robinhood also relies on this to generate profit.

The online brokerage has agreed to pay a $65 million fine to settle charges that it misled customers in response to customer questions about its largest revenue source, the U.S. Securities and Exchange Commission said in December. (

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