13. Lessons from the Trading Floor on Trading and Execution
What Everybody Should Know About Payment for Order Flow
Mark Sebastian wrote the following in his OptionPit.com blog on 12/20/2009:
When I first began trading in 2001, a market making firm, let’s call it Firm XYZ, came up with a new and innovative idea to bring option volume to the Pits where they controlled the most volume, the Pits where they were the Specialist, or the Designated Primary Market-Maker or DPM.
This was called payment for order flow. The exchanges call them “marketing fees” and your broker may call it one of many names.
What seemed like a bright idea at the time has blossomed into a situation that is
• Bad for the customer
• Bad for the liquidity provider
• GREAT for ...