Nothing is truly free. “Free shipping” just means the shipping costs have been factored into the price. “Free streaming service” just means you pay for it with your time watching commercials. Free toasters, free trips, free timeshares: You’re paying for all them somehow, because nothing is actually free.

Which brings us to the concept of free stock trades. Sure, you can log on to your Schwab or TD or Robinhood account and buy or sell a share commission-free, if in fact the service of your choice is able and willing to make the trade you’d like. And this may seem genuinely free, since rules and regulations of course require those platforms to conform with “best execution obligations,” one of which is getting a customer the best price possible. So, here’s something that’s truly free, yes?

Well, the fact that Robinhood, et. al.’s trading costs are eagerly covered by the execution firms paying for that order flow is a pretty good sign that, yea, nothing is truly free. And in the wake of l’affaire GameStop—and the forced retirement from public service of one Jay Clayton—this incongruity has finally occurred to the Securities and Exchange Commission, with a little nudge from an old friend, of course.

“When big sharks like Citadel and Robinhood come out ahead no matter what happens, and when the information they gather isn’t disclosed, and when it’s secret how that information is used, it’s easier for these giants to skim off the top at the expense of small investors,” the Massachusetts Democrat said in a Senate Banking Committee hearing on wild market swings in shares of the gaming retailer and other stocks.

In a letter made public Tuesday, SEC Acting Chairwoman Allison Herren Lee said regulators should examine such arrangements to make sure practices are fully disclosed and “consistent with best execution obligations….” Ms. Lee’s letter also said the SEC should consider new regulations, such as greater disclosure of short selling and steps to ensure small investors understand how options work.

GameStop Saga Prompts SEC to Weigh Review of Payment for Order Flow [WSJ]
Warren Says ‘Sharks’ Citadel, Robinhood Prey on Customers [Bloomberg]



Robinhood Legal Chief Whistling Past Graveyard Of 80% Of Its Revenue

We’re sure all Gary Gensler needs to stop worry and love payment for order flow is time.


Robinhood Finds Sympathetic Regulatory Shoulder To Settle With

FINRA can always be counted on to offer a relative bright spot in a legal and regulatory hellscape.


Robinhood May Lose 81% Of Its Revenue, Still Going Public Anyway

No payment for order flow? No problem for this merry band of troublemakers.


Citadel Securities, Accused Of Rigging Markets, Accuses Someone Else Of Rigging Markets

Your purported friends are IEX are not actually your friends, dear retail investors, sayeth Ken Griffin.

By Chris Potter (Flickr: 3D Judges Gavel) [CC BY 2.0], via Wikimedia Commons

Robinhood Gets Some Good News Vis-à-Vis Getting Sued

TD Ameritrade can’t be hit with a class-action over payment for order flow, so the little app that sometimes couldn’t probably can’t, either.

gamestop 3

SEC Monitoring GameStop Frenzy With Eye Towards Doing Nothing

Letting the Redditors have their fun seems to be a bipartisan point of agreement, which is great, because it probably can’t be stopped.