Shares of Robinhood Markets Inc. tumbled Monday after the head of the Securities and Exchange Commission expressed openness to a ban on payment for order flow, a practice responsible for the bulk of the online brokerage’s revenue.
Robinhood Shares Closed 6.9% Lower Barron published an interview with SEC Chair Gary Gensler, saying a complete ban on payment for the order flow was “on the table” as part of a broader review of the agency.
Robinhood’s stock briefly fell more than 9% on Monday afternoon before making up some of its losses. Shares of Virtu Financial Inc., an electronic trading firm that handles orders from retail brokerages such as Robinhood and TD Ameritrade, were also among the comments. Virtu shares were down 3.8% for the day.
As payment for order flow, or PFOF, online brokers take payments from fast trading companies in exchange for sending stock and option orders from their clients for execution. The trading firms profit from trading against the orders of investors by collecting a small difference between the buying and selling prices of stocks.
PFOF is legal and has been common in US brokerage for decades. But it attracted renewed attention this year after the trading frenzy in GameStop Corp. and other meme stocks spurred retail control over the settlement of transactions.