![]() Robinhood touts their service as being great for customers because they don't charge commissions on trades, but the company still monetizes their users, and their current setup lead to issues with executing trades during the January 2021 short squeeze of GameStop shares. ![]() That would explain why the company's stock took a dump this afternoon when this interview was published. Most brokers only generate about 10% of their revenues from PFOF arrangements with market makers, but Robinhood depends on Payment for Order Flow for 80% of sales. Transparency benefits competition, and efficiency of markets. The chairman also stated that the SEC is not just focused on PFOF, “Also on the table is how do we move more of this market to transparency. The SEC Chairman mentioned multiple times during the interview that Australia, Canada, and the United Kingdom have already banned Payment for Order Flow systems. That may not be the most efficient markets for the 2020s." This may all come to a screeching halt some time in the near future, as the chairman confirmed that ban of PFOF is still "on the table." Gensler went on to describe what he views as "an inherent conflict of interest," stating that brokers "get the data, they get first look, they get to match off buyers and sellers out of that order flow. In the case of Robinhood, most trades are executed by Citadel. PFOF is a setup where brokers send trade orders to market makers in exchange for a portion of the profits from executing the trade. In an interview with financial publication Barron's, SEC Chairman Gary Gensler spoke about the Payment for Order Flow (PFOF) framework that currently exists in the United States stock market. ![]() Gensler said that a flat out ban of the business model is still very much "on the table." Robinhood (HOOD) shares fell nearly 8% today on the news that their Payment for Order Flow business model may be banned by the SEC. ![]() One topic that caused Robinhood's stock to drop today is Payment for Order Flow. The meme stock revolution put a spotlight on many inadequate regulations governing the market, and SEC Chairman Gary Gensler spoke to Barron's about ongoing efforts to protect investors. The Securities and Exchange Commission finds itself at an investing crossroads in 2021. ![]()
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