Comment by kareemsabri | Hacker News Reader

Comment by kareemsabri | Hacker News Reader

Parent Full thread

I'm not sure I see the problem here, given the current SEC opinion on broker-dealers and their responsibility. As I recall, broker-dealers are legally required to get you the best price they can. Having an "incentive" to do otherwise doesn't much matter, since it's illegal.

> Giving brokers incentives to encourage customers to trade more frequently to maximize the payments

This is also true of brokers who charge commissions. Brokers want their customers to trade. It is a conflict of interest, and always has been, but it's not unique to PFOF. Broker-dealers, unlike an investment advisor, are NOT fiduciaries and are not required to act in their customers best interests.

> Gensler has criticized the "gamification of trading" in which commission-free brokerages encourage excessive trading using lights, noises, notifications and other gimmicks to generate more PFOF.

It's not clear to me what's a gimmick, and what's just a better UI/UX. This seems difficult to police and I'm not convinced retail investors are so dumb that lights and noises make them trade.

> Broker-dealers, unlike an investment advisor, are NOT fiduciaries and are not required to act in their customers best interests.

I agree broker-dealers are not fiduciaries, but aren’t zero commission trades for customers better than commissioned trades? And is not about maximizing the payments as the SEC says, it is about the lack of “toxicity” in the orders; the assumption is that trading against retail flow is that it is more valuable to market makers because the trades are less likely to be informed on which direction the market is going to go. This does not mean retail traders are not getting the best price, just that market makers are willing to pay a premium to interact with this flow.

> As I recall, broker-dealers are legally required to get you the best price they can.

With PFOF, broker-dealers are still required to honor the best price posted by the national exchanges as per Reg NMS.

> I'm not convinced retail investors are so dumb that lights and noises make them trade.

Are you sure about that? IMO, It isn’t too dissimilar from making brokerage accounts more like slot machines or candy crush. If you can make something more addictive for your customers to use, it could be a problem. Making it illegal to use push notifications to trigger FOMO seems like an easy move to make on this front.

> aren’t zero commission trades for customers better than commissioned trades

Yes. But enough people misunderstand the markets to think e.g. Citadel is secretly influencing the DTCC. Even in this thread. That creates systemic political risk to the market.

The real problem is the gamification Robinhood et al pushed without concern for the consequences. But if PFOF has to go as a way to expose the actual cost of transacting to retail traders, that’s not the worst trade-off.

Reply on news.ycombinator.com