This is the Bad News that Made Robinhood Shares Tank
Robinhood shares recently took a dive after the Securites Exchange Commission (SEC Chair told Barron’s that banning payment for order flow is possible.
SEC Chairman Gary Gensler told Barron’s that banning the controversial practice of payment for order flow is “on the table.”
Robinhood’s stock fell 6.9% to $43.64 per share after Gensler told Barron’s this news.
The chairman told the outlet that payment for order flow, which is the back-end payment brokerages receive for directing clients’ trades to market makers, has “an inherent conflict of interest.”
Payment for order flow is one of Robinhood’s largest revenue sources and how it is able to provide zero-commission trading.
Asked for clarification, an SEC spokesperson declined to comment for this story. Gensler has said in the past that an outright ban of payment for order flow is among several options the
regulator could introduce.
The SEC has said it will also consider clearer and more rigorous brokerage disclosures as another possible alternative.
Robinhood however has assured that if the PFOF model changed, the brokerage and the industry would be able to adapt.
“We think payment-for-order flow is a better deal for our customers, vs. the old commission structure. It allows investors to invest smaller amounts without having to worry about the cost of commissions,” Robinhood CFO Jason Warnick said during the company’s virtual roadshow before its IPO.
It also didn’t help that CNCB reported this week that PayPal is exploring ways to let its users trade individual stocks.
PayPal has hired a brokerage industry veteran to lead “Invest at PayPal” — a previously unreported division of the payments giant.
Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.