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Market makers, high-speed traders and payment for order flow
· Institution or agency
Fact, law or dataA rule, statute, definition or measured number.
Firms that stand ready to buy and sell all day, earning the spread; high-speed 'wholesalers' fill most US retail stock orders.
See it on the Money & Finance map →How it works
A market maker posts a bid and an ask, say $10.00 and $10.02, and earns the gap while managing its inventory risk. Since the 2000s computer-driven firms such as Citadel Securities, Virtu and Jane Street do most of it in microseconds. Brokers like Robinhood send customer orders to these wholesalers, which pay a fraction of a cent per share (payment for order flow, or PFOF) and usually beat the exchange price slightly. Bernie Madoff popularized PFOF in the 1980s–90s.
Why it matters
They made trading nearly free and spreads tiny, but PFOF raises a conflict of interest: do brokers route orders for the customer's price or for the payment?
Facts, rules and data
Broker Rule 606 and market-center Rule 605 reports on routing, payments and execution quality, SEC and FINRA studies, and academic research on spreads since 2001 decimal pricing.
Debates and risks
Whether retail investors would get better prices if their orders competed in open auctions; the SEC dropped such a proposal in June 2025.
Connections (3)
▸Market makers, high-speed traders and payment for order flow quote prices all day on Stock exchanges: NYSE and NasdaqFact, law or data
The connection
Exchanges pay rebates to firms that post quotes and charge those that take them, so market makers supply most of the displayed prices on the NYSE and Nasdaq. The NYSE also assigns a designated market maker to each stock to keep trading orderly and help run the opening and closing auctions.
When and why
New York and the New Jersey data centers where exchanges' computers sit; firms include Citadel Securities, Virtu and GTS.
How we know
Exchange fee schedules, NYSE rules for designated market makers, and SEC market-structure studies.
Debates and risks
Whether 'maker-taker' rebates distort how brokers route orders; the SEC withdrew a related pricing proposal in June 2025.
▸Market makers, high-speed traders and payment for order flow were thrust into the spotlight by GameStop meme-stock squeeze (2021)Fact, law or data
The connection
During the January 2021 squeeze, wholesalers such as Citadel Securities filled most retail GameStop orders sent by commission-free apps that earn order-flow payments. When Robinhood restricted buying on January 28, many traders blamed market makers and hedge funds, but investigators found the curbs came from clearing-house collateral demands.
When and why
Online brokers and wholesalers, January 2021; a House Financial Services Committee hearing on February 18, 2021.
How we know
The SEC staff report of October 2021 and congressional hearing records.
Debates and risks
Whether PFOF hurt retail investors in the episode, or simply made possible the free trading that fueled it.
▸Market makers, high-speed traders and payment for order flow drew scrutiny over order-flow payments from Securities and Exchange Commission (SEC)Fact, law or data
The connection
The SEC requires brokers to disclose order routing and payments (Rule 606) and market centers to report execution quality (Rule 605, expanded in 2024). In December 2022 it proposed forcing many retail orders into open auctions, then withdrew that plan in June 2025. The UK bans PFOF, and an EU ban phased in by 2026.
When and why
Washington; the 2021 GameStop hearings prompted Chair Gary Gensler's review, and the SEC under his successor Paul Atkins withdrew it.
How we know
SEC releases, Federal Register notices and the SEC's June 12, 2025 withdrawal of 14 pending proposals.
Debates and risks
Whether a future SEC revisits PFOF, and whether bans abroad left retail traders better or worse off.