Robinhood tanks after SEC chair tells Barron’s that banning fee for order movement is a risk

Vlad Tenev, CEO and co-founder Robinhood Markets, Inc., is displayed on a display screen throughout his firm’s IPO on the Nasdaq Market website in Occasions Sq. in New York Metropolis, U.S., July 29, 2021.

Brendan McDermid | Reuters

Shares of Robinhood dropped Monday amid a number of bouts of unhealthy information for the brokerage app.

Robinhood’s inventory fell 6.9% to $43.64 per share after Securities and Change Fee Chairman Gary Gensler instructed Barron’s that banning the controversial observe of fee for order movement is “on the desk.”

Gensler instructed the outlet that fee for order movement — the back-end fee brokerages obtain for guiding purchasers’ trades to market makers — has “an inherent battle of curiosity.”

Fee for order movement is certainly one of Robinhood’s largest income sources and the way in which the millennial-favored inventory buying and selling app is ready to present zero-commission buying and selling. Fee for order movement is a controversial observe that has garnered consideration from the Monetary Business Regulatory Authority and Principal Avenue.

Following an epic brief squeeze in GameStop’s inventory in January that pressured Robinhood to restrict buying and selling on sure securities, Robinhood CEO Vlad Tenev was pressured to testify to the U.S. Home Monetary Companies Committee in February. Legislators criticized fee for order movement for the battle it has with market makers like Citadel Securities.

“We expect payment-for-order movement is a greater deal for our prospects, vs. the outdated fee construction. It permits traders to speculate smaller quantities with out having to fret about the price of commissions,” Robinhood CFO Jason Warnick stated throughout the firm’s digital roadshow earlier than its IPO.

Robinhood has stated that if the PFOF mannequin modified, the brokerage and the trade would be capable of adapt.

Gensler’s feedback come after the SEC stated Friday it’s stepping up its inquiry into so-called gamification and behavioral prompts utilized by on-line brokerages and funding advisors to prod folks to commerce extra shares and different securities.

Shares of Robinhood have been already decrease Monday after CNBC reported that PayPal is exploring methods to let customers commerce particular person shares. The SEC didn’t instantly reply to CNBC’s request for remark.

As a part of the growth, based on one of many sources, the fee big employed a brokerage trade veteran to steer “Make investments at PayPal” — a beforehand unreported division of the funds big.

Robinhood went public on the Nasdaq final month, hitting the general public markets it seeks to democratize for novice traders. Because the debut, shares of Robinhood have had a wild trip. After sinking on the primary few days of buying and selling, the corporate had a meme inventory second when it rallied 50% amid retail investor curiosity.

The inventory is up greater than 24% in August.

Click on right here to learn the total Barron’s report.