The New York Department of Financial Services's Authority
New York Attorney General Letitia James has broad authority under the Martin Act — one of the most powerful state securities enforcement laws in the nation — to investigate PFOF practices without needing to prove intent to defraud. The New York DFS has independent regulatory authority over broker-dealers operating in the state. New York should lead a national investigation.
The Harm Requiring Regulatory Response
New York is the center of American finance — and yet its retail investors are subject to the same PFOF practices that benefit a Chicago-based market maker. New York retail investors on Robinhood, E*Trade, TD Ameritrade, and other platforms generate billions in order flow for Citadel Securities annually.
What State Regulators Should Do
The New York Department of Financial Services (DFS), in coordination with the New York Attorney General's office, should:
- Open an investigation into whether broker-dealers serving New York residents are meeting best execution obligations under state securities law
- Issue a formal inquiry to major PFOF-dependent brokers about their routing arrangements with Citadel Securities and the execution quality they achieve for New York residents
- Contact NASAA to explore multistate coordination
- Issue investor education guidance about PFOF practices and how New York investors can protect themselves
- Consider rulemaking under state securities law to require enhanced disclosure of PFOF arrangements affecting New York retail investors
Contacting the New York Department of Financial Services
New York investors and advocates can contact the New York Department of Financial Services (DFS) at https://www.dfs.ny.gov to report concerns and request regulatory action on PFOF practices affecting New York residents.