The Order Competition Rule
The centerpiece of the 2022 SEC proposal was an 'order competition rule' that would have required marketable retail orders to be exposed to competing market makers in transparent auctions before being routed to a PFOF recipient. The idea was to create a competitive process that could improve execution quality beyond what bilateral PFOF arrangements produce. The proposal drew significant criticism from market makers and substantial support from investor advocates.
Best Execution Rulemaking
The SEC also proposed enhanced best execution rules, which would have explicitly required brokers to document how they evaluate execution quality and whether PFOF arrangements compromise their best execution obligations. This proposal would have increased accountability for brokers' routing decisions relative to current Rule 606 requirements.
Industry Opposition
Citadel Securities and other major market makers strongly opposed key elements of the SEC's proposals. Industry representatives argued that the current PFOF system already delivers better outcomes for retail investors than alternatives. Critics of this argument note that the industry's lobbying against reform is financially motivated: PFOF is enormously profitable for market makers, and structural change would reduce those profits.
The Outcome
According to public reporting, the SEC under subsequent leadership substantially scaled back or withdrew key elements of the 2022 market structure reform package by 2024. This outcome disappointed investor advocates and was welcomed by the financial industry. Whether the reforms will be revisited in future SEC leadership cycles remains to be seen.