The payment for order flow program was initiated following announcements by other options exchanges this past week that they would sponsor payment for order flow plans. The Exchange will levy fees on contracts traded on its floor, at rates comparable to those announced by the other options exchanges. The revenue will be used to compensate brokerage firms for orders sent to the PCX.
"Payment for order flow should not be the basis for a firm's order routing decisions," said Philip D. DeFeo, PCX Chairman and CEO. "Quality of markets, price improvement, customer service, the speed and reliability of technology - these are the key criteria firms should be using in determining where to send public customer orders. Under those criteria, we're prepared to compete with anyone. The quality of execution reports we'll be providing our customers will document our performance against those criteria. The reports will give the firms the information they need to assure themselves, their customers, and their regulators that their order-routing practices are meeting all standards for best execution. Indeed, we expect these reports to set a new industry standard for the evaluation of market quality."
"We are implementing standards and practices that will make the Pacific Exchange options floor a product in its own right," DeFeo said. "Our goal is for firms to receive the same quality of execution, in every issue we trade, regardless of who's trading it."
The PCX payment for order flow proposal will be filed with SEC shortly, and is expected to be effective upon filing. The Exchange will begin distributing the quality of execution reports to firms in August.
