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Robinhood’s chief authorized officer says the SEC will not ban cost for order circulation

Baiju Bhatt and Vlad Tenev attend Robinhood Markets IPO Itemizing Day on July 29, 2021 in New York Metropolis.

Cindy Ord | Getty Photographs

Robinhood’s chief authorized officer defended on Monday the back-end cost that brokerages obtain for steering purchasers’ trades to market makers, saying it’s in the end a profit to retail buyers.

The Securities and Alternate Fee is “going to reach on the conclusion that cost for order circulation is undoubtedly an amazingly good factor for retail buyers and so they’re not going to ban it,” Robinhood’s Dan Gallagher informed CNBC’s “Squawk Box.”

Fee for order circulation is one among Robinhood’s largest income sources and is how the millennial-favored inventory buying and selling app is ready to present zero-commission buying and selling. Fee for order circulation is a controversial observe that has garnered consideration from regulators and Major Avenue.

Banning cost for order circulation “is on the desk,” mentioned Gallagher, who was SEC commissioner from 2011 to 2015. “I believe they’ll take a deep have a look at this problem. I believe, by legislation, they need to undergo a really arduous course of.”

SEC chair Gary Gensler told Barron’s last month that cost for order circulation has “an inherent battle of curiosity.” Gensler mentioned banning the observe isn’t off the desk.

“At Robinhood, [payment for order flow] is the life blood of a no fee, no minimal stability brokerage. That is what has introduced in an entire new era of buyers,” mentioned Gallagher. “I believe that the overwhelming proof is that the present market construction works properly for retail buyers.”

Following an epic brief squeeze in GameStop’s inventory in January that compelled Robinhood to restrict buying and selling on sure securities, Robinhood CEO Vlad Tenev was compelled to testify to the House Financial Services Committee in February. Legislators criticized cost for order circulation for the battle it has with market makers like Citadel Securities.

“The notion which are clients are silly, that they want safety, that they want the federal government and the nanny state to come back out and save them for making dangerous selections, I believe they’re insulted,” mentioned Gallagher.

Gallagher informed CNBC that if he nonetheless labored for the SEC, he can be investigating the individuals and establishments that he claims lied surrounding the GameStop brief squeeze.

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