On Monday Robinhood shares fell by 6.9% over news that a ban is on the table for its payment for order flow practice. The main catalyst behind this is the SEC Chairman, Gary Gensler.
He doesn’t feel at ease with the ongoing practice of directing clients’ trades to market makers. It’s hard to tell whether they are going to outright issue out this ban at the moment. It’s something that their current and future investors will have to think about.
This is not good news at all, as various regulatory factions of the finance industry have hit out at its practice over the last few months. Payment for order flow is basically its main bread and butter. It has been the driver that had catapulted them to their current success.
The whole value proposition of zero-commission trading is built on this framework. If it is to be threatened, it will surely leave a hole in their business model.
But there is still hope as alternative ideas were suggested by the SEC. A popular one is to have rigorous brokerage disclosures.
Robinhood recently went public last month, with the idea of promoting investing for everyone. Even though this idea may seem noble, it has come under scrutiny by regulators.
Despite all of those dark clouds looming over the company, the stock is still up more than 24% since its IPO. Millennials are flocking to the platform due to its ease of use in purchasing financial securities.
