SEC chief considers banning key way Robinhood does

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A ban is “on the table” for an app that underpins some of the most popular free stock trading apps, Gary Gensler, chairman of the Securities and Exchange Commission, said on Monday.

Mr. Gensler He told Barron in an interview He said retail brokerage firms like Robinhood would consider banning “pay for order flow,” the practice where large trading operations pay to trade for their clients.

Regulation is at the heart of Robinhood and some of its competitors, including E-Commerce and Charles Schwab, organizing their businesses to offer commission-free transactions – a crucial factor in attracting millions of ordinary people to the stock market.

Large trading operations that fulfill orders, including Citadel Securities and Virtu Financial, make small profits on such transactions, and the massive user base of commission-free brokerages means these small profits will add up quickly.

Mr. Gensler told Barron that the practice was an “natural conflict of interest” because the firms executing the transactions could benefit from this information.

“They take the data, they take the first look, they match the buyers and sellers in this order flow,” he said.

In the past few months, Mr. Gensler, a set of expressions He said he’s been studying the app closely and is open to a wide variety of regulatory options. Shortly after it was approved, he ordered the agency to look into the matter; investigation is still ongoing.

Robinhood drew attention to comments made by chief financial officer Jason Warnick as the company prepares for its own operation. initial public offering this year. “We think paying for order flow is a better deal for our clients compared to the old commission structure,” he said at the time. Robinhood officials, who made a call earlier this month to discuss quarterly earnings with investors, said that while it does not envision a direct payment ban for order flow, its sources of income are diverse and could easily withstand such a move.

There was no immediate comment from the Citadel. Virtu declined to comment.

Consumer advocates and others have criticized the practice, complaining that it could give large trading operations an edge.

David Lauer, CEO of the data analytics firm, said banning it would be a welcome development. urvin.ai and a former high-frequency stock trader.

“It’s a stubborn conflict of interest,” he said. “Brokers can’t get around that.”

But he said ending the practice doesn’t mean the end of free stock trading: Firms like Fidelity already offer free trade without using the payment flow system to order.

Shares of Robinhood tumbled nearly 7 percent on the day. Shares of Virtu Financial also fell after Mr Gensler’s comments were published, ending the day down almost 4 percent.

Matthew Goldstein, Kate Kelly and Tara Siegel Bernard contributing reporting.

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