Payment for Order Flow and Option Internalization

• 成果类型: Article; Early Access
• 署名作者: Ernst, Thomas; Spatt, Chester
• 署名单位: University of Maryland College Park; University System of Maryland; University of Maryland College Park; Carnegie Mellon University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454; 1465-7368
• DOI: 10.1093/rfs/hhaf108
• 发表日期: 2026-04-05
• 关键词: G13; G14; G23; trading costs; MARKET; IMPACT

摘要

Option wholesalers specialize in purchasing and executing against retail option order flow. Orders are internalized via auctions (which provide price improvement) and the limit order book. Designated market makers (DMMs) have a key advantage in internalizing limit order book trades: they obtain the first five contracts of any order they bring to an exchange where they are a DMM. We exploit variation in DMM assignments and allocation rules to highlight how these rules create a barrier to entry in option wholesaling that does not exist for equity wholesaling, protecting wholesaler profits and high option PFOF.