United States: PFOF Permitted with Disclosure
The U.S. permits PFOF for retail equity orders under Rule 606 disclosure requirements. The SEC has proposed but not implemented more restrictive rules. The U.S. is the only major developed financial market that permits retail equity PFOF in the form Citadel Securities operates. This regulatory choice is the foundation of the dominant U.S. wholesale market-making model.
United Kingdom: Prohibited by FCA
The UK FCA effectively prohibits PFOF for retail clients, concluding it is incompatible with best execution obligations. Post-Brexit, the UK has retained its PFOF restrictions independent of EU rules.
European Union: Substantially Restricted Under MiFID II
MiFID II substantially restricts inducements, including PFOF, across the EU. While specific implementations vary somewhat by member state, the fundamental PFOF arrangement is not permissible in the EU retail equity market under the MiFID II framework.
Canada, Australia, and Others
Canada prohibits PFOF in equity markets. Australia's regulatory framework does not generally permit U.S.-style PFOF arrangements. Japan and Hong Kong have their own market structure rules that differ from the U.S. model. The near-universal international move away from PFOF contrasts with U.S. regulatory permissiveness.