You drive Uber. You know that a good way to get a big tip is to drive people from luxury hotels to the airport. However, you never get those kinds of clients. You've tried gaming the app, but whatever you do, you end up with lower-end dregs...like, driving drunk frat guys home from Jimmy McDougel's Wing and Whiskey Irish-Style Barroom Experience and Lounge.
So, instead of waiting for the app, you come up with a different plan. You'll tip the bellhops at the luxury hotels to steer clients to you. The clients will pay you cash instead of going through Uber...and you'll give the bellhops $5 for every rider they bring you.
That situation describes how payment for order flow works. Except, in this case, we're talking stock orders instead of rides from hotels.
You put in an order to your broker. They need to route the order through a third party (an exchange or market maker). They accept a kickback from a firm to steer the business to them. The broker makes money...not from you, but from the company it uses to complete your transaction.
The SEC requires that brokers disclose whether they receive revenue through payment for order flow.
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Finance: What is the 1934 Securities And...14 Views
Finance a la shmoop what is the 1934 Securities and Exchange Act? okay if
you're going to exchange securities like trade stocks and bonds among yourselves [Stocks and bond exchange between man and woman]
well then there have to be rules right yeah you'd think well there didn't used
to be and then aunt 1934 came along and well she set the table the key element [Aunt setting dinner table]
that 34 Act created was the SEC itself it's not a football conference near
Florida it was a wise creation because it recognized that well whatever the
world looked like in 1934 it was highly likely that 50 years later it would look
a whole lot different and while horses and buggies went away [Horse and carriage disappears]
while that wasn't the case for stocks and bonds and keep in mind that another
Act was created a year earlier cleverly named yes the Securities Act of 1933
while that act focused on primary shares that is original shares like the kind
sold in an IPO well the 1934 Act was all about shares
traded after that initial set it's called the secondary market where
secondary shares are traded not primary ones well this new law made the New York [Group of people dealing in stock market]
Stock Exchange a big deal with big powers and made insider trading illegal
and believe it or not it really wasn't illegal back then and it you know thus
paved the way for many exciting Wall Street movies where greed is sometimes
good and sometimes not [List of Wall Street movies]
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What is the Securities Act of 1933? Signed by President Franklin Roosevelt, the Securities Act of 1933 was the first legislation to regulate the st...