Vedder Thinking | News Sam Tyfield Discusses the British Financial Conduct Authority’s Review of PFOF in FOW Intelligence
Sam Tyfield, a Partner in Vedder Price's London office and member of the firm's Investment Services and Finance & Transactions groups, was recently quoted in the FOW Intelligence article titled "FCA Takes Tough Line on Pay for Flow."
The article provides an overview of the British Financial Conduct Authority's (FCA) thematic review of Payment for Order Flow (PFOF). PFOF is a process in which brokers take payment for directing transactions to market-makers. In its review, the FCA heavily criticizes firms for lacking appropriate best execution requirements and does not condone the PFOF process. An intriguing part of the FCA's review was the omission of any reference to deals with eligible counterparties (ECPs), since many firms argue that a deal with ECPs is not subject to best execution requirements, therefore making PFOF acceptable.
Mr. Tyfield provides commentary on this point, stating, "I suspect the reason for not covering ECPs explicitly is that it has said 'the starting point for all market models is that best execution should apply to all firms which owe contractual or agency obligations to their clients,' which means the classification is almost irrelevant." He later adds, "The FCA believes it has found evidence that many brokers could not 'consistently demonstrate that the client's category actually drove an assessment of whether the client was relying on the firm to deliver best execution' and believes that the market-maker should be a client of the broker. And so if at least one client of the broker is not an ECP, the rules will apply anyway."
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