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Robinhood jumps, then fades after report that SEC won’t ban fee for order move

A lady holds a smartphone with the Robinhood emblem within the background.

Rafael Henrique | Sopa Pictures | Lightrocket | Getty Pictures

Shares of retail brokerage Robinhood closed decrease on Thursday, giving up early features, after a report that U.S. regulators wouldn’t ban fee for order move, a key a part of the corporate’s enterprise mannequin.

Bloomberg Information reported earlier than the market opened that the Securities and Change Fee would cease wanting banning fee for order move, although the regulatory company should make rule modifications that might decrease the profitability of the apply.

Shares of Robinhood fell 2.7% on the day after being up greater than 11% earlier within the session.

Fee for order move is a controversial apply that successfully permits market makers and brokerage corporations to separate the revenue made on trades from retail clients. It’s a key income for Robinhood and different low-cost brokerage corporations, and it helps them supply buying and selling with no upfront value.

SEC Commissioner Gary Gensler has been essential of the apply, questioning whether or not the fee relationships between market makers and brokerage corporations was hurting the execution value for buyer trades.

“Our markets have moved to zero fee, nevertheless it doesn’t suggest it is free. There’s nonetheless fee beneath these functions. And it doesn’t suggest it is all the time greatest execution,” Gensler instructed CNBC’s “Squawk on the Avenue” final yr.

An SEC spokesperson stated in an announcement Thursday that “Chair Gensler stated in his latest Congressional testimony that he believes that it is acceptable to take a look at methods to clean up the SEC’s guidelines to make our fairness markets as honest, environment friendly, and aggressive as potential for traders, significantly for retail traders.”

“Employees is contemplating potential suggestions associated to greatest execution; disclosure of order execution high quality; the Nationwide Greatest Bid and Provide; minimal value increments (‘tick dimension’); trade entry charges and rebates; fee for order move; and order-by-order competitors,” the assertion continued.

Dan Gallagher, Robinhood’s chief authorized, compliance and company affairs officer, stated in an announcement that the corporate was not stunned by the report and that “a ban, or different pointless, overly sophisticated market construction rule modifications, will solely hurt the hundreds of thousands of Individuals who at the moment are taking part within the inventory marketplace for the primary time.”

The corporate’s inventory is down greater than 40% yr thus far because the brokerage agency has seen consumer progress reverse after quickly increasing throughout 2020 and 2021.

Elsewhere, shares of market maker Virtu Monetary rose greater than 8% following the report.

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