The E*Trade-Citadel PFOF Relationship
E*Trade was one of the original discount brokers to adopt PFOF arrangements with Citadel Securities. Following Morgan Stanley's acquisition of E*Trade in 2020, the combined entity continued significant PFOF arrangements. Morgan Stanley's wealth management and institutional businesses create additional potential conflicts with retail order routing.
The Financial Scale
In 2019-2020, E*Trade received hundreds of millions in payment for order flow. This payment came primarily from Citadel Securities in exchange for routing E*Trade customers' equity orders to Citadel for execution. Citadel paid this amount because it expected to extract significantly more value from executing E*Trade's customers' orders — through spread capture — than it paid for the order flow. The difference represents value extracted from E*Trade customers through execution quality degradation.
Regulatory Actions
No specific PFOF enforcement action. Acquired by Morgan Stanley 2020.
What E*Trade Customers Should Know
E*Trade customers can find out how their orders are routed by accessing the broker's SEC Rule 606 quarterly report, typically available in the "Legal Disclosures" or "About" section of the broker's website. For investors concerned about PFOF, alternative brokers that route to exchanges directly — including Fidelity (for equity orders) and Interactive Brokers (with direct routing option) — are available.