In response to ESMA’s recent public consultation, dated 1 October, calling for evidence on retail investor protection issues, such as payment for order flow (PFOF), the Association for Financial Markets in Europe (AFME) has issued the following statement:
AFME agrees that payment for order flow (PFOF) models are unlikely to be compatible with existing MiFID II rules on avoiding conflicts of interests and ensuring best execution outcomes for clients. AFME also agrees that a review of PFOF models should be undertaken to encourage greater supervisory convergence among EU Member States.
The safeguards put in place by MiFID II rules ensure that investors are suitably protected and that the primary goal of investment firms is to achieve best execution outcomes for their clients.
Clients and regulators should be able to test claims from retail brokers that they are offering best execution through any liquidity provider which pays for order flow. We note that a consolidated tape showing prevailing available prices at the time of the receipt of a client order would assist in verifying these claims by reviewing a retail broker’s executions in aggregate.
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Notes to Editors:
- MiFID II has strict requirements for investment firms to manage conflicts of interest. Firms are required to take all appropriate steps to identify and prevent or manage any conflicts of interest “between themselves… and their clients… including those caused by the receipt of inducements from third parties”. MiFID II also explicitly states that firms need to prevent conflicts of interest in the first instance and to rely on disclosure only as a last resort. These requirements are set out under Articles 23, 24 and 27 within MiFID II which cover conflicts of interest, best execution and inducements respectively.
- Some National Competent Authorities have commented on payment for order flow including the AMF and FCA agreeing that MiFID rules prevent conflicts of interest and ensure best execution for clients
 Speech by Robert Ophele (AMF Chairman), March 2021 – link here
 FCA supervisory guidance, April 2019 – link here