LONDON, May 31 (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
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