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Difficulty: Medium
Category: Market Microstructure
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Topics: PFOF, market-microstructure, conflict-of-interest, order-execution
A brokerage firm routes its customer orders to a market maker, receiving a small payment for each share executed. This practice is known as payment for order flow (PFOF). Consider a scenario where a market maker offers slightly worse prices than the best available prices on other exchanges, but pays the brokerage firm a rebate of 0.002 dollars per share. Which of the following statements best describes the core controversy surrounding PFOF and the potential conflict of interest?
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