The UK: A Clean Ban
The Financial Conduct Authority (FCA) in the United Kingdom effectively banned PFOF in 2012 under MiFID I implementation. The FCA concluded that PFOF creates an inherent conflict of interest and that the 'price improvement' claimed by market makers does not compensate for the structural conflict. UK retail investors benefit from competitive exchange-based execution with no wholesale market maker extracting spread through undisclosed arrangements.
Canada: Provincial Action
Canadian securities regulators, led by the Ontario Securities Commission and the Investment Industry Regulatory Organization of Canada (IIROC), prohibited PFOF for retail equity orders. Canadian retail investors benefit from a prohibition on the same practices that Citadel Securities employs with U.S. retail investors.
Europe: MiFID II Restrictions
The EU's Markets in Financial Instruments Directive II (MiFID II) substantially restricts payment for order flow by requiring firms to demonstrate that PFOF arrangements do not impair their ability to act in clients' best interests. In practice, MiFID II has significantly reduced or eliminated PFOF in most European markets.
Why the U.S. Lags
The U.S. regulatory environment allows PFOF because the SEC has chosen to regulate through disclosure rather than prohibition. This choice has been shaped by decades of industry lobbying — led, in the most recent period, by Citadel Securities. Kenneth Griffin's political donations to senators and representatives who oversee SEC appropriations and the financial regulatory framework represent a direct financial investment in maintaining the regulatory status quo.