Payment for order flow explained: how PFOF works in US stocks and options, and the rules behind it

Payment for order flow (PFOF) is money, or another benefit, that a broker receives for sending its customers’ orders to a particular trading firm or venue. In the US it is legal, but brokers must disclose it in public reports, at account opening and on trade confirmations, and it must not get in the way of their duty to seek best execution. It is now larger in listed options than in stocks, and it works differently there.

This guide builds on our explainer on how a US stock order gets filled, which covers routing, wholesalers and the national best bid and offer (NBBO). It does not forecast rule changes or rate any broker.

What counts as payment for order flow

The SEC’s definition, in its trade-confirmation rule (Rule 10b-10), is broad. It covers any monetary payment, service, property or other benefit a broker receives in return for routing customer orders, including research, clearing services, reciprocal order-flow deals and exchange rebates larger than the fee the broker would otherwise pay.

In stocks, the main payers are wholesalers. According to the SEC, Rule 606 reports show that the six largest wholesalers paid retail brokers $235 million for orders in exchange-listed (NMS) stocks in the first quarter of 2022. SEC staff noted in 2021 that these deals are negotiated individually and that some wholesalers let the broker choose how much of the value goes to improving customers’ prices and how much it keeps. In December 2020 the SEC found that Robinhood’s customers received inferior prices, due in large part to its unusually high PFOF rates, costing them $34.1 million even after commission savings. Robinhood paid a $65 million penalty without admitting or denying the findings.

Why options are different

Listed options must trade on an exchange, because the Options Clearing Corporation generally only clears standardized options that traded on one. So the firms that buy retail options orders, known as consolidators, cannot fill them off exchange. According to SEC staff, they choose the exchange, perhaps based on where they or an affiliate are most likely to trade against the order. Some exchanges let them direct an order to an affiliated market maker, which gets a guaranteed share (40%, for example) if it is quoting the best price.

The money is larger. In the first quarter of 2022 wholesalers paid retail brokers more than $796 million for stock and options orders, and listed options made up about 70%, or more than $561 million. SEC staff wrote in April 2026 that options now account for two-thirds of all PFOF, because of higher per-contract rates and the growth of retail options trading. In May 2026 Jamie Selway, director of the SEC’s Division of Trading and Markets, said options PFOF market-wide was twice that of equities. Research cited by staff found the top five payers accounted for over 95% of PFOF received by US brokers.

Exchanges pay for flow too. Under marketing-fee programs, an options exchange charges certain market makers a fee when they trade with customer orders, pools the money and lets designated market makers pay it to brokers that send orders. A 2000 SEC staff study records a Chicago Board Options Exchange filing of 10 July 2000 for a marketing fee of 40 cents per contract. Exchanges also use maker-taker pricing, paying rebates to orders that add liquidity and charging orders that take it. Unlike private deals with wholesalers, exchange pricing is published as exchange rules.

SEC staff describe research on whether options PFOF harms execution quality as limited and contested.

The three disclosure rules

Rule 606 (routing). Every broker must publish a quarterly report, broken down by month, within one month after the quarter ends, and keep it online for three years. It has separate sections for S&P 500 stocks, other NMS stocks and options. For the ten venues receiving the most orders, and any venue receiving at least five percent, it shows the share of orders sent there and the net PFOF, profit-sharing, fees paid and rebates received, as a dollar total and as a rate, for four order types. It must also describe the terms of those deals, including volume thresholds and tiered payments. On request, a broker must tell you which venues handled your own orders over the previous six months.

Rule 605 (execution quality). Market centers publish monthly statistics on how orders in NMS stocks were filled. Amendments adopted in March 2024 extend it to brokers with 100,000 or more customer accounts and add a short summary report. The compliance date was extended from 14 December 2025 to 1 August 2026. Rule 605 does not cover options. After the SEC’s options roundtable in April 2026, Selway said the Division “discerned an emerging consensus” on execution quality disclosure for options; that is a staff observation, not a rule.

Rule 607 (account opening). For stocks, when you open an account and every year after, a broker must tell you in writing whether it receives PFOF and the nature of that compensation, how it decides where to route orders, and the extent to which orders can be filled at prices better than the NBBO. Under Rule 10b-10, confirmations of stock trades must say whether the broker receives PFOF and that you can ask in writing for the source and nature of the payment.

How to read a Rule 606 report

Brokers post the report on their websites, and FINRA Rule 6151 requires them to submit it to FINRA, which publishes the reports centrally. Look at which venues get most orders, then at the net payment columns for each order type. In the SEC’s analysis of Q1 2022 options reports, average rates were negative for marketable limit orders sent to exchanges and positive for non-marketable limit orders, which the SEC read as brokers sending most of those to maker-taker exchanges to collect rebates. Then read the “material aspects” text for the terms of each deal. FINRA’s 2026 oversight report lists errors it has found, such as firms wrongly stating that they receive no PFOF.

A 606 report shows what the broker was paid, not what customers gained; for stocks, that is in Rule 605 reports.

Example, with hypothetical numbers: a customer buys 100 shares when the best offer is $20.00. A wholesaler fills the order at $19.99, so the customer saves $1.00, and the wholesaler pays the broker 0.2 cents a share, or $0.20. Under a different split the fill might be $19.995, saving the customer $0.50, while the broker receives $0.50. The 606 report would show only the broker’s payment.

Best execution and price improvement

FINRA Rule 5310 requires brokers to use “reasonable diligence” to find the best market so that the customer’s price is as favorable as possible under prevailing conditions. Firms that do not review orders one by one must carry out “regular and rigorous” reviews, at least quarterly. These must weigh price improvement (the difference between the fill and the best quotes when the order arrived), speed, likelihood of execution and the existence of PFOF arrangements. FINRA’s Regulatory Notice 21-23 says PFOF may not be taken into account when judging market quality, and firms may not negotiate terms that reduce the price improvement customers would otherwise get.

On 24 July 2026 FINRA asked for comment on modernizing its best execution guidance, citing the SEC’s proposal of 11 June 2026 to rescind the trade-through rule (Rule 611). FINRA noted that options trade only on exchanges, which may warrant extra considerations. Comments closed on 25 September 2026. FINRA said it preliminarily believes the rule text itself remains appropriately calibrated.

The 2022 proposals and what happened to them

On 14 December 2022 the SEC proposed an order competition rule, under which many marketable orders from individual investors would have been exposed to auctions before a wholesaler could fill them. It estimated wholesalers’ price improvement fell short of a competitive level by $1.5 billion a year. Regulation Best Execution, proposed the same day, would have been the first SEC best execution rule (FINRA’s traces back to 1968) and required brokers to document PFOF arrangements. In its analysis the SEC considered banning off-exchange PFOF in stocks and options but did not propose it.

A Rule 605 proposal from the same package was adopted in 2024. On 12 June 2025 the SEC withdrew the order competition rule and Regulation Best Execution and said it did not intend to adopt final rules; any future action would need a new proposal.

Outside the US

In May 2012 the UK’s Financial Services Authority said PFOF creates a clear conflict of interest and is unlikely to be compatible with its inducements rule. It stopped short of an outright ban: payments are allowed only if the inducement, best execution and conflict rules are all met. In 2014 the FCA said the firms it reviewed had stopped the practice. In the EU, Article 39a of MiFIR, added in 2024, bars firms from receiving PFOF for orders from retail clients and from clients who have opted up to professional status. Member states could exempt firms serving domestic clients until 30 June 2026. Germany did, and BaFin says the ban has applied there since 1 July 2026.

The arguments, as regulators have put them

Concerns: SEC staff, the FSA and ESMA all describe a conflict of interest, because a broker may route to whoever pays most. SEC staff in 2021 added that PFOF may encourage brokers to find new ways to increase customer trading. The SEC’s 2022 analysis argued that price improvement falls short of what competition would deliver.

The other side: the SEC said wholesalers do give retail orders some price improvement compared with exchanges, because these orders impose lower costs on liquidity providers. In its 2022 analysis it said a ban would make higher commissions more likely and could push out smaller brokers that depend on PFOF.

Frequently asked questions

Is payment for order flow legal in the US? Yes, if it is disclosed as the rules require and the broker still meets its best execution duty. The 2022 proposals that would have reshaped it were withdrawn in 2025.

Why is PFOF bigger in options than in stocks? SEC staff point to higher per-contract payments and the growth of retail options trading.

Where can I find my broker’s routing report? On the broker’s website or in FINRA’s central collection. You can also ask your broker where your own orders went over the past six months.

Does PFOF mean I get a worse price? Not necessarily; regulators in the US and the EU have reached different conclusions about it. Rule 605 reports show execution quality for stocks; options have no equivalent report yet.