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Robinhood was pretty eager to go public, and you can understand why. In little more than a decade, it had become the go-to app for the millennial trader, as underlined by its role in the great meme-stock frenzy of 2021. Its burgeoning cryptocurrency business was booming. It had quadrupled in value in just two years, and lots of people were rather impatient to cash in on that enthusiasm.

Of course, there were plenty of reasons that Robinhood maybe shouldn’t have pressed forward with its IPO: An ever-growing laundry list of legal and regulatory issues the length of War and Peace, shoddy systems and customer service, the desire of those in power to shut it down, the litigious fury of its users over its performance during the aforementioned frenzy.

All of that notwithstanding, there was perhaps one overriding concern: Get it done before regulators make abundantly clear they’re going to take four out of every five dollars it makes away.

Robinhood shares closed 6.9% lower after Barron’s published an interview with SEC Chairman Gary Gensler in which he said a full prohibition of payment for order flow was “on the table” as part of a broader agency review.

Mr. Gensler told Barron’s that the practice has “an inherent conflict of interest” because the firms that execute the trades can benefit from that information.

“They get the data, they get the first look, they get to match off buyers and sellers out of that order flow,” he said.

In fairness, Robinhood’s not the only one making bank from PFOF, although TD Ameritrade, E*Trade and Schwab are not quite as reliant (read: not nearly as dependent) on it as the ‘Hood. Still, seems like a strange time to decide to get into a business that relies on it so heavily, and yet….

After rolling out the ability to trade cryptocurrencies last year, the [PayPal] has been exploring ways to let users trade individual stocks…. In order to offer stock trading to customers, it’s possible PayPal will partner with or buy an existing broker-dealer. According to one source, PayPal has held already discussions with potential industry partners.

Which is suppose is another reason why Robinhood might have been so quick to market.

Robinhood Stock Drops After SEC Chairman Warns on Payment for Order Flow [WSJ]
The S.E.C. head is considering banning a key way Robinhood makes money. [NYT]
PayPal is exploring a stock-trading platform for U.S. customers [CNBC]

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

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

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.

By US government [Public domain], via Wikimedia Commons

‘Wait, Senator, Don’t You Want To Hear About This Mug Who Said He Had An AI Supercomputer In His Mom’s Basement?’

Selections from the cutting-room floor of Gary Gensler’s Senate Banking Committee testimony.