The Securities and Exchange Commission (SEC) could possibly implement a full ban on payments for order flow due to conflict of interest issues, Barron’s reported.
- SEC Chairman Gary Gensler on Monday said the total prohibition of payment for order flow is “on the table” given the “inherent” conflict of interest as spreads are made on each trade.
- Under the payment for order flow, market makers are given trade orders by brokers in exchange for part of the profits. Gensler said market makers generate more than the spreads as they gain access to data that will allow them to match trades.
- Gensler believes the system may “not be the most efficient market for the 2020s.” The agency is now reviewing the practice and could likely come out with drafts in months’ time.
- “I’m raising this because it’s on the table. This is very clear,” Gensler said, noting that the ban is already in place in the United Kingdom, Australia, and Canada. He also hinted at possible moves to boost transparency in the market.
Any changes to the payment for order flow could be implemented as part of a bigger reorganization of the processing and tracking of trades in the market.