On 13 December 2017, the Financial Conduct Authority (FCA) issued a Dear CEO letter on Payment for Order Flow. It confirms the FCA’s view that the practice of brokers demanding payments from counterparties as a condition for conducting client business with them substantially undermines a broker’s ability to act as a good agent, lead to inferior client execution outcomes and that such charges would breach MiFID2.

The letter warns brokers away from seeking to avoid the rules through structural changes, such as linking non-execution related charges to market makers to order flow, establishing arrangements with overseas affiliates or intermediaries or only contacting market markers required to send alternative order flows to brokers for the sole purposes of generating a fee replicating payments for order flow.  

Compliance with these rules will be an FCA supervisory focus in January, looking at the economic reality of the relationship.

If members have any questions, please contact Adam Jacobs-Dean, Oliver Robinson or Adele Rentsch.