Dec. 28, 2022
December 28, 2022 I am a Singaporean, but I invest in US-listed stocks. I welcome the SEC's move towards requiring Best Execution policies and procedures and in particular the requirement for dealing with conflicted transactions. However, I believe that the SEC's proposal could go further by introducing an outright ban on payment for order flow (PFOF). I note that there is a similar requirement coming into force in Singapore under the Guidelines to Notice SFA04-N16 on Execution of Customers' Orders issued by the Monetary Authority of Singapore (MAS), where there is an outright ban on PFOF (see paragraph 6 of the above Guidelines). As noted by the MAS, PFOF introduces conflicts of interests and is likely to cause harm to customers as the broker may be incentivized to pursue commission or other form of payment from another broker or counterparty in return for routing customers orders to that broker or counterparty for its own benefit. This is inconsistent with the brokers duty to provide Best Execution to customers. For instance, PFOF may lead to poorer outcomes for customers as additional costs may be passed to the brokers customers, such as through wider bid-ask spreads from the other broker or counterparty who agrees to pay PFOF in return for obtaining customers order flow from the broker.