Hang on a sec. Mixing in defective product is literally fraud.
Payment for order flow is not only legal, but good for retail investors. It, and practices like it, are the only reason joe schmoes can go buy 2 shares of TSLA in their robinhood account (actual traders deal in round lots - 100 shares. Price levels featuring less than 100 shares aren't even protected price levels!).
There's also the technicality of the wholesalers technically providing a very small (<=1 cent) price improvement, but retail investors don't care about that.
I really object to the frankly callous and irresponsible bandying about of financial stuff like this. It damages trust in what is potentially one of the best-regulated and most efficient systems in the world.
I also want to note that, assuming you're referring to Citadel's 700k fine, 1) the SEC's description of what happened is too vague to really infer what's going on, 2) my guess based on their description is that they essentially had a bug that technically constituted trading ahead of a small, small % of client orders (though it does not seem like it was actually getting an advantage by doing so, since it was a bug) and 3) this is all corroborated by it being only a 700k USD fine, which is comically small for a fine from both the SEC and for a firm as large as Citadel. This was the lightest of slaps on the wrist from a regulator who will absolutely destroy firms with fines when they have hard evidence.
If anyone wants to look deeper into this, Matt Levine has written extensively at this point on the subject of the payment-for-order-flow boogieman.
Depending on the product, there is an expected and accepted defect rate. This can be very high in situations where detecting and removing the defects would cost more to the supplier than the customer would spend handling the defects. If you deal in dirt cheap electronic junk (think novelty holiday junk) the rate can be as high as 10%. Bottom of the market SD cards are getting close to that standard.
From the perspective of law, it matters very much how that defect rate is reached, because intent matters more than the outcome itself.
If you have a 10% defect rate for unavoidable causes, that sucks. If you have a 10% defect rate because you chose to cut all corners and cheap out on every aspect of your manufacturing and testing, that sucks but it's legal. However, if you have a 5% defect rate and intentionally choose to mix in extra 5% of known defective units - that's fraud.
Depends on the industry. There are industries where high defect rates are an accepted norm. These are not necessarily codified. For example: if you order fresh fruit/vegetables in bulk, a certain percentage always arrive below acceptable quality. That is simply a norm in the industry. You are free to inspect/reject as much as you want, but nobody will want to sell to you if you make a lawsuit out of every bad apple.
Payment for order flow is not only legal, but good for retail investors. It, and practices like it, are the only reason joe schmoes can go buy 2 shares of TSLA in their robinhood account (actual traders deal in round lots - 100 shares. Price levels featuring less than 100 shares aren't even protected price levels!).
There's also the technicality of the wholesalers technically providing a very small (<=1 cent) price improvement, but retail investors don't care about that.
I really object to the frankly callous and irresponsible bandying about of financial stuff like this. It damages trust in what is potentially one of the best-regulated and most efficient systems in the world.
I also want to note that, assuming you're referring to Citadel's 700k fine, 1) the SEC's description of what happened is too vague to really infer what's going on, 2) my guess based on their description is that they essentially had a bug that technically constituted trading ahead of a small, small % of client orders (though it does not seem like it was actually getting an advantage by doing so, since it was a bug) and 3) this is all corroborated by it being only a 700k USD fine, which is comically small for a fine from both the SEC and for a firm as large as Citadel. This was the lightest of slaps on the wrist from a regulator who will absolutely destroy firms with fines when they have hard evidence.
If anyone wants to look deeper into this, Matt Levine has written extensively at this point on the subject of the payment-for-order-flow boogieman.