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Shares of Robinhood Markets Inc. fell on Monday after the head of the Securities and Exchange Commission signaled he was prepared to ban payment from order flow, a practice that accounts for most of the online broker’s income.
Robinhood shares closed down 6.9% after Barron’s published an interview with SEC Chairman Gary Gensler in which he said a total ban on payments for the order flow was “on the way.” the table ”as part of a larger agency review.
Robinhood stock briefly lost more than 9% on Monday afternoon before recouping some of its losses. Shares of Virtu Financial Inc., an e-commerce company that handles orders from retail brokerage firms such as Robinhood and TD Ameritrade, also fell on the remarks. Virtu stock fell 3.8% on the day.
As Payment for Order Flow, or PFOF, online brokerage houses accept payments from high-speed trading companies in exchange for sending their clients’ stock and option orders for execution. Trading companies profit from trading against investor orders by collecting a small difference between the buying and selling prices of stocks.
PFOF is legal and has been common in the brokerage industry in the United States for decades. But it gained renewed attention this year after GameStop Corp.’s commercial frenzy. and other memes actions have stimulated scrutiny in the management of small investor transactions.
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