They have to execute at or better than the national best bid and offer so you are getting at or better than the price you'd get if you posted a marketable order to an exchange. I don't see how they are front-running.
back
2 comments
Oh yes, the old "They have to execute..."
I'm sure these nice American businesses are complying 100% with this rule.
OTOH, I'm not sure that it's easy/possible to really know what the 'NBBO' is, at any given 'moment'.
FINRA requires retail brokers to make a report on price improvements based on a retroactive analysis vs NBBO. So, yes, they do know what NBBO was, and whether they were truly price improvements or not, and that's being monitored and tracked, and the brokers get yelled at if they violate that.
Pretty much all conspiratorial, "motivational" analysis of PFOF critics on HN are simply wrong. As Matt Levine explains it clearly, from the utilitarian perspective, PFOF is not a bad thing at all for retail investors. Whether it can be even better is a different question and clearly SEC is trying to find that with the new proposal, but as is always the case with a complex system with differently motivated actors, what exactly the new balance point for the new system will be is uncertain.
How do you enforce that? The retail investors are not aware of that and they have no way to compare at the point of trade. If they grease enough palms in the government they are free to do what ever they want