Now imagine the wholesaler also owns an investment bank who are massively short on a stockā¦ 
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This relies on markets maintaining a material price discrepancy which just feels like an obvious arb opportunity.
In your example if you just add a second broker dealer participant itās clear theyād no longer be able to maintain a price materially above the ādarkā price (as a competitor would undercut to win the trade)
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Yeah, when I read stuff like that I always wonder who is selling in the dark pools for less than they could get on the market and why would they do that?
I get that PFOF routes to a market maker that may not be the best price available, but the secret hidden better price stuff is a bit far fetched. It would require someone to be deliberately selling or buying at a worse price than the market just so the market maker could make money
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Yeah, overall Iām still on the fence for PFOF, although at this moment Iād agree it creates potentially problematic incentives, but I disagree that other regulations (including existing ones) canāt resolve that without banning it entirely. Robust best execution regulation is important and if you get that right then PFOF becomes a non-issue in my eyes.
But any explanations that rely on other market participants leaving obvious money on the table out of ineptitude, benevolence or general lack of competition donāt change my views as I just donāt see people behaving like that. Lots of popular explanations for ābadā practices (not just PFOF) seem to rely on this.
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That still doesnāt mean thereās a secret ārealā price. it just means they arenāt giving the customer best execution
In your example who is selling to them at the secret ārealā price? because that is who is actually losing out in this scenario. Why would anyone do that deliberately?
It makes more sense if they were giving both sellers and buyers poor execution, thus artificially widening the spread
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If I were Sequoia (I believe) who pumped big money into Trade Republic looking to make them the European Robinhood this would be very concerning. If TR are like RH itāll make up the majority of their revenues.
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Yeah that valuation was insanely high already even with PFOF. They were valued at ~90% of their AUA which is massive all I can think was that they are betting big on crypto + massive growth.
Itād be interesting to see what a more reasonable value is without PFOF, maybe the FT funding raise will give us some clues but ~30% of AUA feels pretty generous and that would be a massive drop for TR.
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I actually think the opposite is true, people are trying to move away from sensible metrics like % AUA to user-based metrics under the belief that customers are willing to spend disproportionate amounts to justify lofty valuations.
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Not sure how official/confirmed this is, but itās definitely in line with expectations of prohibiting PFOF in Europe
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Would be great to get a comment from the Freetrade team on this!
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The GME link was missing the point. The accusation during January was that Citadel, the hedge fund shorting GME were part of the same family as Citadel the market maker involved in PFOF, and were therefore colluding and passing information on about sales etc
They denied it, as this would be illegally abusing PFOF. Itās a different argument to say PFOF is wrong even when done properly.
Not trying to defend it but felt it needed saying.
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Let them keep PFOF if they think itās so good but makes them disclose on all contract notes how much they were paid for routing your transaction. Sunlight is the best medicine, you watch how fast they create a reason why this wouldnāt be possible all the while claiming to be acting in the buyers best interest.
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It would be interesting if someone could open and trade on an account on a PFOF broker vs a non-PFOF one and see where the differences in price / charges are
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Really good piece and worth a read thanks @WolfofWS
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Iāll save you the click with a quote
The MIT paper ā which was commissioned and paid for by Robinhood ā pushes back against that conclusion.
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I prefer to understand the view point and what lies behind it than dismiss with the commission (i.e. paid for) argument ā¦ because that AFAIAC is an ad hominem attack.
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