Robinhood stock and other digital brokers showed mixed response Thursday morning to news the Securities and Exchange Commission will not ban payment-for-order-flow deals. The decision gives a major boost to financial service firms that generate revenue by striking deals with market makers to execute trades.
However, the SEC may still make rule changes to the practice to make it less profitable, Bloomberg news reported. The plan will be introduced in the coming months and focus on making the process more transparent.
In payment-for-order-flow, brokers like Robinhood send retail stock orders to market makers and large trading firms, such as Citadel Securities, who pay them for the right to execute trades. This revenue allows some brokers, like Charles Schwab and Robinhood, to offer commission-free trading to retail investors. But critics say it may not guarantee the best prices for customers.
Robinhood Stock Pares Early Gains
Still, financial services companies like Virtu Financial, Charles Schwab, which owns TD Ameritrade, and Robinhood stand to benefit. Robinhood in particular generates the bulk of its revenue from PFOF deals.
Robinhood stock quickly shed its early gains and traded down 0.3% in morning action. VIRT stock spiked nearly 10% in the first hour of trading, then pared gains to around 7%. SCHW stock slid about 2% early Thursday along with broader banking stocks.
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