Robinhood Shares Fall As SEC Chair Tells Barron’s That Banning Payment For Order Flow Is A Possibility
On Monday, shares of Robinhood plummeted by 6.9% to $43.64 per share as Securities and Exchange Commission Chairman Gary Gensler told American magazine Barron’s that banning the controversial practice of payment for order flow is a possibility.
Gensler told Barron’s that the payment for order flow — the backend payment that brokerages obtain for directing clients’ trades to market makers — has “an inherent conflict of interest”.
For trading platform Robinhood, payment for order flow is one of its largest revenue sources. It is currently how the platform is able to provide zero-commission trading. Yet, payment for order flow is controversial and has amassed attention from Main Street and the Financial Industry Regulatory Authority. For several months now, Gensler had said that a ban on payment for order flow is an option that the regulator could look to introduce. As a possible alternative, the SEC has said it would also consider better defined and more rigorous brokerage disclosures.
In January, Robinhood was forced to limit trading on certain securities after a short squeeze in GameStop’s stock. This saw Robinhood’s CEO Vlad Tenev testify to the US House Financial Services Committee in February. Legislators condemned payment for order flow for the conflict it has with market makers.
However, Robinhood has previously said that it believes payment for order flow is a better deal for its customers in comparison to the old commission structure. The trading platform says that if the payment for order flow model changed, the brokerage and the wider industry would be capable of adapting.