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Robinhood Markets, Inc.’s logo is seen at an emerging event on Wall Street following the company’s IPO in New York City, USA, on July 29, 2021. REUTERS / Andrew Kelly
NEW YORK, Aug. 30 (Reuters) – Shares of Robinhood Markets Inc. (HOOD.O), a popular gateway for trading meme shares, fell nearly 7% Monday in news that PayPal Holdings Inc. (PYPL .O) could initiate an online brokerage and a report that said regulators were studying a possible ban on a practice that accounted for most of the company’s revenue.
Robinhood shares extended a decline early after CNBC reported that PayPal was exploring ways to allow U.S. customers to trade individual shares on its platform.
Robinhood shares fell even further after Gary Gensler, chairman of the U.S. Securities and Exchange Commission, told Barron’s in an interview published Monday that payment for the flow of orders has “an inherent conflict of interest.” .
Retail brokers like Robinhood send their customers ’orders to wholesale brokers instead of trading in the controversial practice known by the acronym PFOF.
Gensler said that in addition to making a small difference in each trade, wholesalers or market makers also get data, the first look at a trade and the ability to match buyers and sellers from the flow of orders they pay to retail brokers.
“This may not be the most efficient market for the 2020s,” Gensler told Barron’s in the interview.
Gensler did not say whether the SEC had found cases where conflicts of interest had harmed investors.
The SEC is studying PFOF on concerns that may encourage brokers to submit client orders to trading platforms that maximize their own profits rather than providing clients with the best execution for their business.
Shares of Robinhood closed up 6.9% at $ 43.64. Shares were made public in late July and, according to Refinitiv data, have risen by around 25%.
Robinhood’s simple interface has made it popular with investors operating from home during the COVID-19 pandemic and has helped make wild excursions into shares of companies like GameStop Corp (GME.N), among other memes.
In an emailed response to Reuters, a Robinhood spokesman noted the former statements of its chief financial officer that the company would defend its customers and ensure it does not put up barriers that keep people out.
Herbert Lash’s report in New York; Additional reports by Sahil Shaw in Bengaluru Matthew Lewis Edition
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