Liquidity providers like Jane Street, Citadel, et al make money on the spread. They also buy order flows from integrators, and retail investor order flows are now a product.

i.e. retail investor → brokerage platform → clearing/execution infrastructure → Jane Street → payment back toward the brokerage side of the chain.

Who captures the economic value created by retail order flow?

Jane Street.

In an ideal market, this product line shouldn't exist. Institutional investors should not be making money on the activity of retail investors.

What incentives determine where that flow is sent, and would investors receive better execution if their orders were exposed to genuinely competitive price formation rather than privately internalised by a concentrated group of wholesalers?

The regulators should be squashing any HFT related or retail order flow, but it's so opaque _by design_ that getting policymakers, or the general public, to understand that retail investors are paying some portion of tax on their $20T USD annual trades to these companies.

Granted, these order flows _sometimes_ work the other way -- and retail users get a better deal on a trade.. But would you really expect the market to be worth what it is, if that was the case less more often than not?

There is a clear and obvious conflict: the broker is supposed to seek the best execution for the customer while potentially being paid by the firm receiving that customer’s order. How can that be, when the broker's in bed with the liquidity providers?

PFOF and HFT are distinct concepts, but they are widely conflated in this thread. I don't agree that PFOF is inherently bad, but even if it were: it is not a valid criticism of HFT.