What if the U.S. Securities and Exchange Commission bans payment for order flow? Robinhood Markets Inc. gets about 80% of its revenue from payment for order flow, selling its customers’ orders to market makers like Citadel Securities to execute them. This is controversial for reasons we have discussed ad nauseam; you can read about it here and here and here. But the basic point here is that Robinhood doesn’t charge commissions to trade stocks or options or cryptocurrencies, so its customers trade a lot, and it can afford to do that because market makers pay for the privilege of trading with its customers. If they couldn’t do that, then Robinhood would have to start charging commissions, and the whole fun Robinhood thing — the whole Robinhood era of excitable retail trading and meme stocks and options-driven price moves and so forth — would come to an end. Or that’s the worry. So:
Here is the Barron’s article. I should say, nobody seems to think that Gensler particularly means this, and I don’t want to take it too seriously. I do, however, want to describe my guess about what will happen if the SEC does in fact ban payment for order flow. I don’t think the likely outcome is “Robinhood disappears,” or even “Robinhood starts charging commissions.” Robinhood does not want to charge commissions! It’s a bad customer experience! It’s bad for trading volume! Surely there is some way around this (entirely hypothetical) ban?
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August 31, 2021 at 11:23PM
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What Happens to Robinhood If the SEC Bans Payment for Order Flow? - Bloomberg
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