The Twitter machine served me this headline today:
SEC Chief Takes Aim at Payment-for-Order Flow in Sweeping Plans for Stock Markets.
The company that has been named on opposite day could be in trouble:
Gensler asked staff to consider creating an order-by-order auction mechanism intended to help retail traders obtain the best pricing for their orders. The structure would draw on practices now in place in the options market. (wm)
and
Gensler rattled financial firms last year when he refused to rule out prohibiting the practice of brokers getting paid to send customers’ stock orders to market makers as part of the agency’s rule changes, known as payment-for-order flow. (wm)
The company has been aware of this, and disclosed it in their risk section: "Risks Related to Regulation of PFOF".
For example, a bill to direct the SEC to study and consider banning or limiting PFOF in the form of exchange rebates or payments from market centers to broker dealers, conflicts of interest based on PFOF arrangements, and the impact of PFOF on the quality of order execution passed out of the House Financial Services Committee in July 2021. (10K, p.22)
Genssler's idea is to have ratail orders preferably executed on public exchanges (lit exchanges instead of dark pools), with the goal of providing better price discovery and a fairer execution for retail investors.
When we look into Robinhood's finacials from 2021 (10K, p. 100: "Concentrations of Revenue and Credit"), we see that they drew 77% of their revenue from Payment for order flow.
If certain companies think it is worthwhile to pay $1,4 billion (10K, p.92: "CONSOLIDATED STATEMENTS OF OPERATIONS") for a first look on retail order flow, there must be some value in that, which the retail investor might miss out on.
And it is not like Robinhood made tons of money before (10k, p. 93: "CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)")
p.s. numbers in brackets are negative values.
Sources:
(wm): wealthmanagement.com
(10K): Robinhood 10-K 2021: sec.gov
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