The stock price of Robinhood, an online celebrity brokerage firm in the United States, plunged nearly 7% on Monday after the chairman of the US Securities and Exchange Commission (SEC) Gary Gensler stated that the prohibition of controversial Payment for Order Flow (PFOF) has been on the table.
Gensler told the media that order flow payments have an inherent conflict of interest, but did not specify whether the SEC has discovered a conflict of interest that caused investors to suffer losses. Gensler said that staff are reviewing this approach and may make recommendations in the next few months.
Order flow payment is one of Robinhood’s largest sources of income, referring to the return or compensation that the company obtains by sending users’ stocks, options and cryptocurrency orders to high-frequency trading market makers for execution.
Although this type of payment is very small, it can be very profitable to forward a large number of orders to a third party for processing. Order flow payment is a controversial practice that has attracted the attention of the Financial Industry Regulatory Authority.
Robinhood once said that if the PFOF model changes, brokerages and the industry will be able to adapt. Before Gensler’s comments, the SEC said on Friday that the agency is stepping up its investigation into the gamification and trading-encouraging features of online brokerage trading software, which are used by online brokerages and investment advisors to stimulate retail transactions. Stocks and other securities and take more risks.
As of Monday’s close, Robinhood’s stock price fell 6.89% to $43.64. The stock rose more than 24% in August.
