LONDON (Reuters) – The European Union’s executive body has proposed a five-year delay on plans for a bloc-wide ban on brokers earning fees in return for directing stock trades to specific trading platforms, a practice known as payment for order flow (PFOF).
PFOF drew regulatory scrutiny in 2021 when an army of retail investors flocked to so-called meme stocks on Wall Street, using brokers who touted for business by charging zero fees – making money by sending orders to an agreed venue for execution, rather than looking for the best prices.
The European Parliament has proposed banning the practice in line with a proposal from the European Commission, but EU states including Germany want to continue allowing it, though with stricter restrictions.
In a bid to end the stalemate, the Commission has proposed a compromise following a request from EU member states and parliament representatives, according to a document for a meeting of EU states on Thursday that was seen by Reuters.
Under the proposals, there would be a general ban on PFOF in relation to retail customers, the document said.
If PFOF already exists in a member state, it could only be provided to customers in the member state where the broker is established. After five years, it would be banned across the 27-member EU, the document added.
“This ensures that investment firms which have engaged in that practice have sufficient time to make the necessary arrangements,” it said.
(Reporting by Huw Jones; Editing by Helen Popper)