Since 1 July 2026, the ban on Payment for Order Flow (“PFOF”) has also been in force for purely domestic business relationships in Germany. On 22 July 2026, BaFin published a supervisory statement on this matter, in which it sets out in concrete terms for the first time which business models it considers to be compliant with the rules – and which are not. We summarise what brokers, neobrokers and trading venues need to know now.
Table of Contents
1. What exactly is PFOF?
Anyone who has bought shares or ETFs via a neobroker in recent years has usually traded at particularly low cost or even for free. This was made possible by a business model known as Payment for Order Flow – PFOF for short. The broker would route the client’s order to a specific trading venue or market maker and receive a fee in return. This payment funded the low or non-existent order fees for clients.
The problem, from the perspective of European legislators, is that whoever is paid for the routing does not necessarily select the trading venue based on the best price for the client, but rather on the highest kickback. This creates a conflict of interest which, in the legislators’ view, cannot be resolved – and which ultimately comes at the expense of retail investors.
2. Deadline 1 July 2026: The end of the transition period
The European legislator has set out the PFOF ban in Article 39a(1) of the Markets in Financial Instruments Regulation (“MiFIR”). It has applied to cross-border transactions since 28 March 2024. However, Germany had made use of the optional two-year transitional period. This expired on 30 June 2026. Since 1 July 2026, investment firms based in Germany are also no longer permitted to accept PFOF in their dealings with domestic clients.
On 22 July 2026, BaFin set out its supervisory expectations regarding the new requirements for the first time.
3. What BaFin considers to be compliant with the rules
In its supervisory statement, BaFin identifies two business models which it generally considers to be PFOF-compliant. In its view, the decisive factor is that, from an economic perspective, the revenue generated from the order flow is not provided by third parties and is not linked to the routing of client orders to specific execution venues.
3.1. Proprietary trading instead of kickbacks
If an investment firm executes client orders on its own account – for example, as a systematic internaliser or as a market maker on a multilateral trading facility – this is, in BaFin’s view, generally permissible. The key difference from the traditional PFOF model is that the investment firm does not earn revenue from third-party kickbacks but instead bears the trading risks itself. It acts as a counterparty in the market and must therefore comply with regulatory requirements regarding price quality and best execution, which must be regularly reviewed and, where orders are executed via a single execution venue, disclosed separately.
3.2. Product-related distribution fees
Payments from issuers for primary market products for which there is no liquid secondary market – apart from the issuer’s own price quotes – are not covered by the PFOF ban. Prerequisite: the remuneration is granted regardless of the order route and must not create a conflict of interest in order execution.
4. Three creative arrangements that BaFin will not allow
BaFin has evidently scrutinised the matter closely and identified a number of business model adjustments which, whilst appearing different in form, effectively amount to the same thing as PFOF in economic terms. Three examples:
4.1. ‘On behalf of the client’ – the detour via the clearing account
In some cases, market makers maintain direct business relationships with retail clients. The payment, which used to go directly to the broker under PFOF, is now first credited to the client’s clearing account and forwarded from there on behalf of the client to the broker. The broker then reduces its order fee by the amount received.
BaFin makes it clear: from an economic perspective, the cash flows and revenues remain unchanged. The investment firm still has an incentive to work only with those market makers who offer a rebate.
4.2. The commission agent as a protective shield
Many investment firms pass on client orders to other investment firms for execution – for example, on the basis of a commission agreement. The executing firm (the commission agent) might argue that it receives the orders not directly from the retail client but from an eligible counterparty, and that the PFOF ban therefore does not apply.
BaFin clearly refutes this: the commission agent acts in the knowledge that it is operating on an intermediary or sub-commission basis and is thereby executing retail order flow. The commission agent is therefore also prohibited from accepting PFOF.
4.3. The group-owned MTF with excessive fees
In the third scenario, the PFOF cash flow is reclassified: issuers pay a settlement fee to a group-owned trading venue (e.g. an MTF). However, the amount of this fee is unusually high by market standards and significantly exceeds the MTF’s operating costs. From an economic perspective, the aim is clear: the profit from the group-owned MTF operator flows as a profit distribution to the group-owned investment firm – and thus ends up exactly where the PFOF used to go.
5. A look at Brussels: What the European Commission clarifies via the ESMA Q&As
BaFin expressly expects investment firms to comply with the questions and answers (Q&As) published by ESMA on behalf of the European Commission regarding the PFOF ban.
5.1. PFOF ban also applies to client instructions
Even if the client instructs the broker as to which trading venue the order is to be executed on, the PFOF ban still applies. The European Commission makes it clear: Article 39a of MiFIR does not distinguish between orders with and without specific client instructions.
5.2. Over-the-counter trading is also covered
The PFOF ban is not limited to transactions settled via a regulated trading venue. The ban also applies to transactions executed over-the-counter (OTC) via a proprietary trader.
5.3. Discounts on transaction fees only under strict conditions
Article 39a(1), second subparagraph, of MiFIR contains a narrowly defined exception: rebates or discounts on the transaction fees of execution venues are permitted – but only if three conditions are cumulatively met:
Firstly, the rebate or discount must be permitted under the approved and public tariff structure of the relevant trading venue. Secondly, it must exclusively benefit the client – not the investment firm. Thirdly, it must not result in a monetary benefit to the investment firm. Importantly, volume discounts that apply retrospectively to all orders once certain thresholds have been reached – including those already executed – are not permitted.
6. Conclusion: Pressure on business models is mounting
With this supervisory statement, BaFin is sending a clear signal: it is monitoring market developments closely and is prepared to consistently prevent circumvention arrangements.
For brokers and neo-brokers whose business model has so far relied heavily on PFOF, this means that the transition to compliant revenue models – such as proprietary trading or transparent order fees – is not only a regulatory requirement but is also being actively monitored by the regulator. Anyone who continues to maintain PFOF-like cash flows via roundabout routes must expect regulatory action.
