What is considered payment for order flow and how should payment for order flow arrangements be disclosed in the quarterly reports?
Payment for order flow is broadly defined in Exchange Act Rule 10b-10(d)(9), which is cross-referenced in paragraph (a)(8) of the Rule. It provides, among other things, that “any monetary payment, service, property, or other benefit that results in remuneration, compensation, or consideration” to a broker-dealer in return for the routing of orders is payment for order flow. This definition would include, for example, both direct monetary payments for orders (such as a market maker’s payments for marketable orders and an ECN’s payments for non-marketable limit orders) and in-kind goods and services (such as T1 lines, clearing services, and reciprocal agreements for the provision of order flow). The wide-ranging forms that payment for order flow can assume precludes any definitive list of specific instances of payment for order flow. In its quarterly reports, a broker-dealer must disclose the “material aspects” of its relationship with its significant execution venues, including a descri
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