A new academic paper, which supports payment for order flow (PFOF), has been making the rounds through the market structure circle.  The paper is titled “Commission Savings and Execution Quality for Retail Trades” and was written by two MIT professors and a University of Texas professor.  The first thing we always do before even reading an academic paper is to check to see if the paper was sponsored and if there is a financial arrangement between the authors and the sponsor.  This paper fails that test miserably as demonstrated by footnote #1: “Disclosure: Some of the data for this paper (more…)

Earlier this month the SEC announced the appointment of MIT Professor Haoxiang Zhu as the new Director of Trading and Markets.  While we personally don’t know Professor Zhu, we think his appointment is an excellent choice based on some his past research on equity market structure topics.  One paper from 2017 that stands out to us was “Back-Running: Seeking and Hiding Fundamental Information in Order Flows”. Here is the conclusion from that paper: “Back-runners start with no innate trading motive but observe past order flow information of fundamental investors (or equivalently, noise traders). Order flow information allows back-runners to partly (more…)