Bafin clearly states that it expects investment firms, where necessary, to make rule-compliant changes to their business models based on PFOF and to not use impermissible circumvention arrangements. In this context, Bafin provides guidance on business models it considers still permissible as well as on business models it qualifies as impermissible circumventions of the PFOF ban. To determine which business models qualify as circumvention arrangements, Bafin generally applies a strict interpretation of Art. 39a MiFIR. Based on the ratio of the provision, it in particular applies an economic interpretation to determine which kind of payments are in scope.

Bafin generally considers business models rule compliant where, (i) from an economic perspective, the revenue generated from the order flow does not constitute a third-party payment, (ii) the monetary or non-monetary benefits from third parties are not granted for the forwarding of client orders to execution venues and (iii) any additionally applicable regulatory requirements are complied with.

Bafin has provided guidance on particular business models it considers not in scope of the PFOF ban. 

Bafin considers the execution of client orders by investment firms through proprietary trading to be out of scope of the PFOF ban. In connection therewith Bafin reminds investment firms of the applicable best execution provisions as lastly specified by Commission Delegated Regulation (EU) 2026/825 of 14 April 2026.

Bafin further considers sales remunerations in connection with primary market products paid by issuers of those products to be out of scope if the following criteria are fulfilled:

• payments are made for primary market products (Primärmarktprodukte) without any liquid secondary market except for the quotes provided by the issuer;
• sales remuneration has to be paid irrespective of the trading venue; and
• sales remuneration does not cause a conflict of interest in connection with the execution of the order.

Based on that, payments by issuers of structured securities to investment brokers in the form of trade subsidies, i.e. reimbursements of transaction fees of the end client, are in many cases out of scope of the PFOF ban. For ETFs and ETPs this may also be relevant subject to the specific arrangements on secondary market trading.

Bafin has also provided guidance on business models it considers to be non-compliant with Article 39a MiFIR.

Bafin states that, from an economic perspective, payments made by market makers to clients’ netting accounts qualify as PFOF if such payments are directly forwarded to an investment firm while such investment firms discount their transaction fees by the amount received. Bafin argues that in such cases, the investment firm remains subject to the conflict of interest of cooperating only with market makers granting such discounts.

Bafin further considers payments to intermediate brokers to be in scope of the PFOF ban where an investment firm forwards retail client orders to another investment firm acting as intermediate broker which executes or forwards those orders. Bafin clarifies that such intermediate broker must not accept any PFOF although it does not have direct contact to retail clients, if the order executed originally stems from a retail client.

Finally, Bafin clarifies that PFOF must not be re-characterised as a settlement fee to be paid by issuers for trading on a group-internal trading venue: if the amount of the settlement fee is unusually high compared to market standards and far exceeds the operating costs of the trading venue, the profit distribution from the group-internal trading venue operator to the group-internal order flow provider, from an economic perspective, substitutes the PFOF and therefore constitutes an impermissible circumvention of the PFOF ban.

Bafin states that it expects investment firms to observe the ESMA Q&As. Bafin further notes that the exception pursuant to Article 39a paragraph 1 subparagraph 2 MiFIR in relation to rebates and discounts permitted under the approved and public tariff structure of a trading venue shall be interpreted narrowly. In particular, rebates or discounts on transaction fees may not lead to negative transaction fees, i.e. payments from the trading venues to the order flow provider (except for orders executed on own account).

Bafin has clarified that the supervisory statement may be revised in light of further developments and has offered to engage in discussions on this matter at any time. We would be very happy to assist with any questions regarding the supervisory statement or any potential discussions with Bafin in this respect.

For further information on the MiFIR amendments relating to PFOF which entered into force on 28 March 2024, please see our previous article: EU: MiFIR Amendments prohibiting Payment for Order Flow (PFOF) entered into force on 28 March 2024

This note is for guidance only and should not be relied on as legal advice in relation to a particular transaction or situation. Please contact your normal contact at Hogan Lovells Cadwalader if you require assistance or advice in connection with any of the above.

Authored by Dr. Jochen Seitz and Fabian Jacksch.