Payment for Order Flow

Payment for order flow (PFOF) is a practice where a broker receives compensation from a third party—typically a market maker or high-frequency trading firm—for routing client orders to that party for execution, rather than sending them directly to the exchange. While common in US retail brokerage, PFOF is not permitted in India's exchange-regulated market structure, where NSE and BSE mandate that all orders from registered brokers be routed through the exchange's own matching engine. SEBI's strict order routing rules ensure that Indian retail investors' orders receive best-price execution on the exchange without undisclosed conflicts of interest.