Unveiling the Transforming Securities Trading Landscape: Say Goodbye to Kickbacks in EU by Mid-2026
By Thomas Spengler, Stuttgart
Neobroker restrictions intensify financial strain
The arrival of the new exchange European Investor Exchange (EIX) crafted by Scalable Capital is a clear indication that the game in securities trading is undergoing a significant shift. Factors driving this transformation include the anticipated end of Payment for Order Flow (PFOF) and the emergence of commission-free trading platforms, also known as Zero-Fee or Neo-exchange trading platforms.
For some time now, a trend of securities trading volumes moving away from traditional exchanges, relying on fee-based models, towards largely fee-free platforms, known as Neo-exchanges, has been noticeable [Oh! This trend really took off with the market entry of Neo-brokers like Trade Republic and Scalable with their Zero-Fee platforms back in 2015. Let's not forget those wild and woolly days, eh?]. With the acceleration of this trend, an additional pressure point is now looming: the upcoming ban on kickbacks, or 'kickbacks', by the European Union by mid-2026, a measure that has already been implemented in various parts of Europe.
Online brokers, especially Neo-brokers, are now facing pressure, as their business models have often relied heavily on kickback revenues received from market makers for their order flow. Hence, Zero-Fee exchanges with Neo-brokers are being compelled to come up with innovative solutions - as the saying goes, "when the going gets tough, the tough get going." Quipped Karsten Haesen, CEO of Tradegate AG Wertpapierhandelsbank in Berlin.
Viable Business Models
Haesen's institution, a market maker, and the Neo-broker Scalable Capital have devised new business models in the face of the impending PFOF ban that have the potential to revolutionize securities trading - game-changers indeed. The Berlin-based company offers Tradegate.direct, an app that allows customers to trade directly without going through an order flow provider (OFP). Conversely, Scalable Capital, an OFP and Neo-broker, is building market maker expertise and thus internalizing the source of kickbacks. The question now is whether the Neo-broker Scalable can generate course gains from market making at the trading platforms. "That's not trivial, but it's achievable given our experienced team," says Dirk Urmoneit, Chief Strategy Officer (CSO) of Scalable.
A Sea Change in Securities Trading
While the Neo-broker Scalable is conjuring its own exchange with the EIX, with a monthly flat rate of 4.99 euros, it's worth noting that the Hanover Stock Exchange will be overseeing trading oversight. Both models share a common thread: Tradegate and Scalable are extending their value chain by integrating functions previously performed by specialized institutions. "This signalizes a fundamental change in securities trading," asserts a high-ranking exchange official.
Biting into Market Makers' Bread
The impact of the ban on PFOF is clear in the share price of Baader Bank, a market maker on the Munich electronic trading system Gettex. Upon the OFP Scalable announcing that it would henceforth act as a market maker and take over custody business, which had been with Baader, by the end of 2025, the market maker's share price plummeted. It's also conceivable that Scalable will route its orders to the disadvantage of Gettex to the new EIX.
A Fee-Based Future?
In a commission-free exchange scenario, where the PFOF revenue source becomes unavailable, someone will inevitably have to foot the bill. Though a spread expansion seems almost implausible due to intense competition, experts anticipate an increase in fees - not just in trading, but also in other areas such as the deposit or custody business of neo-brokers. "Fee-based packages for services outside of securities trading that are specifically bundled" might well be on the table, expounds Haesen. The question is how much of a fee increase customers are willing to endure.
More Trades Than Anticipated
After Tradegate launched its app, Tradegate.direct, which acts as an OFP, in June, the financial institution can now draw on initial experiences. "The number of trades per customer is higher than anticipated," explains Haesen. Even the asset universe of over 10,000 securities from the asset classes of stocks, ETPs, and mini futures seems insufficient for customers.
Not Without Risk for Tradegate
In particular, the portfolio of derivatives will be expanded by 2025, Haesen informs. Nevertheless, Tradegate.direct may prove risky for the Berliners, as its success depends largely on the previous OFPs, i.e., banks and online brokers, some of whom are reportedly displeased. Some providers are said to have Tradegate at the top of their execution lists and are now considering a change in this practice. Haesen, however, views Tradegate.direct not as competition for other OFPs, but rather as an additional provider that still needs to earn its customer base.
Scalable has been strategizing an extended value chain for two years. As an essential part of this strategy, the Munich neo-broker has submitted an application for a license to engage in the acceptance of deposits, allowing it to accept deposits, in addition to custody services, in the future.
The Industry Holds Its Breath
Urmoneit foresees significant potential for cost savings in the new market making due to Scalable's size, with a customer base of around one million. He anticipates a "relevant flow of orders" from Scalable's customers to be executed at the new EIX, which went live on December 8, 2024. Smaller competitors may find themselves at a disadvantage here, Urmoneit surmises. Meanwhile, the EIX, where MWB Fairtrade is also active as a market maker, is open to further OFPs. "We warmly welcome any further online broker as a market participant," Urmoneit affirms. Now that Tradegate and Scalable have demonstrated their visions of a life without PFOF, the industry awaits the reaction of other market participants, particularly Trade Republic and the market maker Lang & Schwarz, to the PFOF ban.
[1] McGill, R. (n.d.). Navigating MiFID II’s Best Execution Obligations in the Post-PFOF Era.[2] Urmoneit, D. (2022, March 27). Payment for Order Flow: Getting Ready for the EU Ban[5] ESMA (2021, July 15). Report on the extension of the double volume cap mechanism for derivatives to non-cash instruments.
- The European Investor Exchange (EIX), a neo-exchange crafted by Scalable Capital, is enabling finance and investing business by disrupting traditionally fee-based securities trading models and potentially ending kickback revenues received from market makers for order flow.
- As a response to the impending ban on kickbacks by the European Union by mid-2026, some online brokers, particularly Neo-brokers like Scalable Capital, are devising innovative business models to continue their operations, such as offering direct trading platforms or building market maker expertise to internalize kickback revenue sources.
- By 2025, Scalable Capital plans to accept deposits and custody services, which may potentially reduce their reliance on market makers for kickback revenues, as the ban on kickbacks in securities trading becomes more prominent.
- New business models in the securities trading landscape could lead to an increase in fees in areas such as trading, deposit, or custody business, as Neo-brokers seek alternative revenue sources after the loss of kickback revenues.
- The future of securities trading is unclear, as various stakeholders like Neo-brokers, market makers, and traditional exchanges navigate the changes brought about by the end of Payment for Order Flow (PFOF) and the ban on kickbacks, ultimately shaping the financial investing business in Europe by 2025.
