As the SEC chief Gary Gensler looks for ways to give investors better prices, retail brokers may no longer be able to offer trading via ‘payment for order flow.’

New SEC free trade plan brings down Robinhood.

After the Securities and Exchange Commission (SEC) proposed new regulations on free trading, Robinhood Markets Inc (NASDAQ:HOOD) rebounded marginally from its initial decline, now down 1.4 percent to US$8.27.

As the SEC chair Gary Gensler explored for ways to give investors better prices, retail brokers may no longer be authorised to offer trading via ‘paid for order flow’ (PFOF).

PFOF is a practise in which some retail brokers, including as Robinhood, Charles Schwab Corp, and TD Ameritrade, benefit from the sale of their customers’ orders to large Wall Street market makers like Citadel Securities and Virtu Financial.

PFOF accounted for over three-quarters of Robinhood’s revenue in the first quarter of 2022, according to Bloomberg, with brokers earning US$3.8 billion last year and US$2.8 billion in 2020.

 

Moving Markets

One of Gensler’s suggestions is to transmit trade orders to an auction process, similar to how the options market does things.

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