Robinhood tanks after the SEC chairman announced Barron’s ban on order flow payments is one possibility


Vlad Tenev, CEO and Co-Founder of Robinhood Markets, Inc., appears on a screen during his company’s initial public offering on the Nasdaq Market location in Times Square in New York City, United States, on July 29, 2021.

Brendan McDermid | Reuters

Robinhood’s shares fell Monday amid several bad news for the brokerage app.

Robinhood’s stock fell 6.9% to $ 43.64 per share after Gary Gensler, chairman of the Securities and Exchange Commission, told Barron’s that the ban on the controversial order flow payment method was “on the table.” may be.

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Gensler told the point of sale that payment for the flow of orders – the back-end payment brokers who receive for referring client business to market makers – has an “inherent conflict of interest.”

Paying for the order flow is one of Robinhood’s greatest sources of income and the way millennials’ favorite stock trading app enables commission-free trading. Payment-for-order flow is a controversial practice that has caught the attention of the Financial Industry Regulatory Authority and Main Street.

After an epic short squeeze on GameStop shares in January that forced Robinhood to restrict trading in certain securities, Robinhood’s boss, Vlad Tenev, had to testify to the US House of Representatives’ Financial Services Committee in February. Lawmakers criticized the order flow payment for the conflict with market makers like Citadel Securities.

“We believe that the flow of payments for orders is a better deal for our customers compared to the old commission structure. It enables investors to invest smaller amounts without having to worry about commission costs, ”said Jason Warnick, CFO of Robinhood, during the company’s pre-IPO virtual roadshow.

Robinhood has said that if the PFOF model changes, the brokerage business and industry would be able to adapt.

Gensler’s comments come after the SEC announced on Friday that it is stepping up its investigation into gamification and behavioral prompts used by online brokers and investment advisers to encourage people to trade more stocks and other stocks.

Robinhood’s stocks were already lower Monday after CNBC reported that PayPal was looking for ways to let users trade individual stocks. The SEC did not immediately respond to CNBC’s request for comment.

As part of its expansion, the payment giant has hired a veteran brokerage industry to run Invest at PayPal – a previously unreported division of the payment giant, according to one of the sources.

Robinhood went public on Nasdaq last month, hitting the public markets it seeks to democratize for amateur investors. Robinhood stocks have had a wild ride since debut. After falling for the first few days of trading, the company had a meme stock moment when it rebounded 50% amid retail investor interest.

HOOD stock was up more than 24% in August.

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