The results of BaFin's study are nuanced:

• For smaller order volumes, execution on PFOF trading venues was predominantly beneficial. Where transaction costs were taken into account, the results for the majority of clients were better than on the reference markets.
• However, for larger order volumes and with lower liquidity on the reference markets at the time of order execution, these benefits were lost.

The results do not show whether these differences are due to PFOF.

BaFin shares the concerns raised by ESMA but rejects a blanket ban

The widespread practice of brokers receiving third-party compensation for directing securities orders to market makers has been the subject of criticism. The European Commission is seeking to impose a general ban on PFOF. In 2021, BaFin made it clear that it does, on the whole, share the concerns raised by the European Securities and Markets Authority (ESMA) that PFOF could lead to conflicts of interest among brokers that direct orders to market makers.

“Before imposing a ban on payment for order flow, we as supervisors should first carefully analyse the impacts and consider less restrictive regulatory measures,“ said Dr Thorsten Pötzsch, BaFin’s Chief Executive Director for Securities Supervision. The findings from the study are intended to contribute to such an analysis. BaFin is aware of the risks associated with PFOF, but it also sees benefits to the practice, such as reduced transaction costs. Pötzsch emphasised the importance, in the interests of consumer protection, of avoiding the worst-case scenario, in which a hasty ban would make trading more expensive for retail clients only without having any further effects.

Studies conducted by other European supervisory authorities on foreign shares imply that the execution of securities orders on PFOF trading platforms is largely disadvantageous for retail clients. In its study, BaFin followed the methodology used by these supervisory authorities with the aim of facilitating comparison of the results. However – in accordance with the concept of total consideration under MiFID II – BaFin also took transaction costs charged by the trading venues into consideration. Furthermore, through its focus on German shares, BaFin’s study covered a larger proportion of share trading on the PFOF trading venues examined – around 30 percent of transactions – compared with the studies conducted by other European supervisory authorities.