Does Payment For Order Flow To Your Broker Help Or Hurt You?
Robert H. Battalio, Tim Loughran
Journal of Business Ethics · 2008 · Volume 80 · Issue 1
DOI: 10.1007/s10551-007-9445-x
Abstract
The presumption is that a broker executing a stock trade for a retail investor will get the investor the best possible price execution for the transaction. In fact, the broker often sells the retail investor’s trade to an intermediary for cash payment. The broker’s motivation to generate dealer profits seems to overcome the broker’s fiduciary responsibility to obtain the best execution price for the customer, raising ethical questions. Purchasers and internalizers of order flow in the market may cause prices quoted on the NYSE to deteriorate, making all investors worse off.
Keywords
Payment for order flow, Madoff, Broker execution, Internalization
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