Now the controversial remuneration practice is also attracting attention from the American stock exchange supervisory authority SEC.

The EU stock exchange and securities regulator ESMA is already examining a ban on the reimbursement model.

The SEC has now set itself the goal of strengthening competition among brokerage houses and helping small investors to get better conditions for stock transactions.

SEC Chairman Gary Gensler unveiled a reform plan at a trade meeting on Wednesday that would lead to the biggest changes in the US stock market in more than a decade.

Markus Fruehauf

Editor in Business.

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The controversial remuneration practice of payment-for-order-flow (PFOF) should also be questioned.

A formal SEC proposal is expected in the fall.

A report by the Wall Street Journal on the plans already led to a fall in the trading app Robinhood, which is used primarily by young small investors, on Tuesday.

The core of the reform should be a competition among trading houses for every order from small investors.

The brokers would have to forward the buy or sell orders to auctions organized by stock exchanges or other trading venues.

Market participants would then compete there for the best deal.

Until now, brokers have been able to forward orders from small investors directly to large trading houses, which process these orders, provided the price is at least as good as the official stock market price.

Gensler has criticized this in the past as an obstacle to free competition.

With PFOF, neo-brokers receive discounts or payments from large trading houses in return for forwarding orders to large trading houses.

As a result, regulators fear that orders will not be routed to those offering the best prices, but rather the highest rebates.

"Inherent Conflicts"

The practice is banned in the UK, Canada and Australia.

It has "inherent conflicts," Gensler explained.

He noted that even without PFOF, some brokers did not charge any fees from customers.

In the past he has not ruled out a ban for the USA either.

Due to the reimbursements through the PFOF model, neo-brokers can offer securities transactions much cheaper or even free of charge, which traditional banks have not been able to do up to now.

In Europe, too, the remuneration practice is under the critical scrutiny of supervisors because they fear conflicts of interest to the detriment of private customers if neo-brokers such as Trade Republic or Smartbroker concentrate on a specific trading partner.

That is why the EU securities regulator Esma is examining a PFOF ban.

A few weeks ago, the German financial regulator Bafin distanced itself from this because, in its opinion, the PFOF model also offers advantages for private investors.

Instead of a ban, Executive Director Thorsten Pötzsch advocated a comprehensive analysis of the effects beforehand and to think about less restrictive measures. Based on a study, the digital asset manager Scalable Capital pointed out that private investors trade significantly cheaper on so-called retail exchanges tailored to their needs than on institutional trading venues.

With a PFOF ban, Brussels would be doing retail investors a disservice.

American shareholder representatives initially welcomed the SEC plans.

"There are too many in the financial industry today who thrive on anti-competitive and predatory practices in highly fragmented markets," said Dennis Kelleher of the advocacy group Better Markets.

As a result, retail investors are "mistreated, if not ripped off."

Industry representatives, on the other hand, were skeptical.

"We talk about how jealous the world is of our markets," said Joseph Mecane of Citadel Securities.

"We have to be very careful not to unintentionally return to a time when things looked even worse than they are today."