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The largest online broker in the Netherlands is adopting the revenue model of the American Robinhood. The question is whether customers therefore no longer have to pay for their orders.
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FlatexDeGiro has signed a deal with the German trading platform Tradegate, whereby it will forward customer orders from the Dutch subsidiary DeGiro. In return, it is paid, a practice known as “payment for order flow.” The Dutch regulator has been disapproving of this revenue model for years. The European Mifid rules also state that brokers may not receive a discount or compensation for forwarding orders from private investors.
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But because the German stock market watchdog interprets the European rules more broadly, it is now normal in that country to forward customer data. This creates a conflict of interest. Brokers can choose to forward orders from customers to the partner that pays the most and not to the partner that delivers the best price for the customer.
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German bank account
Earlier this year, DeGiro, which also has tens of thousands of Belgians as customers, came fully into the hands of the German Flatex. The money of the customers has since been transferred to a German bank account. Since then, the online broker has been largely governed by German rules and supervised by the financial authority Bafin.
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The European Mifid rules state that brokers may not receive a discount or compensation for forwarding orders.
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According to CEO Frank Niehage of FlatexDeGiro, the deal is a big step forward, because the deal allows customers to invest even when the regulated exchanges are closed. ‘During the day our customers have to work,’ says Niehage in an interview with the Dutch business newspaper FD. They can then trade early in the morning and in the evening.’
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With this, FlatexDeGiro is heading in the same direction as the American trading app Robinhood. It has also been heavily criticized for selling on its market orders in exchange for financial compensation. At the end of last year, the company encountered another $65 million settlement with US stock watchdog SEC. According to the SEC, the app had not clearly told its customers how it makes its money.
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According to FlatexDeGiro, customers of DeGiro will be informed about the deal soon.
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