Payment for Order Flow in the United Kingdom

In this paper, we investigate the clarification issued in 2012 by the Financial Services Authority (FSA), now the Financial Conduct Authority (FCA), in regard to the illegality of payment for order flow (PFOF) arrangements in the United Kingdom.

A PFOF arrangement is one in which a broker offers to systematically route its order flow to a wholesale market maker in return for a fee. While the broker earns the fee (subsidising the commission charged to the end investor), the market maker acquires the opportunity to execute the order flow internally.

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