European Commission set to ban trade practice propelling meme stocks

The European Commission is planning to ban payment for order flow, paralleling potential US moves to stem a practice that hit the headlines during the meme-stock mania.

 

A forthcoming review of the Markets in Financial Instruments Directive will include a ban amid other measures to increase transparency, such as a consolidated tape of information about transactions, people familiar with the matter said.

 

The US Securities and Exchange Commission is separately weighing a ban on payment for order flow, in which trading firms pay retail brokerages to execute their trades. Regulators are concerned that video-game like prompts have encouraged excessive trading on app-based brokerages that fueled a explosive surge in value for GameStop and other stocks this year.

 

While the day-trading frenzy is far more muted in Europe than the US, the practice of zero-commission trading is starting to cross the Atlantic. That prompted the bloc’s markets watchdog to warn firms and investors in July of the risks arising from payment for order flow.

 

A spokesperson for the European Commission declined to comment.

 

Mairead McGuinness, the EU’s financial services commissioner, said this month regulators were “closely monitoring” payment for order flow. It was difficult to assess how problematic the practice is “because there is no consolidated view of all liquidity and prices of financial instruments traded across execution venues in the European markets.”