The shares of Robinhood Markets Inc. fell on Monday after the head of the Securities and Exchange Commission noted that it was open to banning payment of order flow, a practice that accounts for most of the brokerage’s online income.
Robinhood shares closed down 6.9% after Barron’s published an interview with SEC President Gary Gensler in which he claimed there was a “total on the table” of a total ban on the payment of order flow as part of a broader review of the agency.
Shares of Robinhood fell briefly more than 9% Monday afternoon before recovering some of its losses. Shares of Virtu Financial Inc., an e-commerce company that handles orders from retail brokers such as Robinhood and TD Ameritrade, also fell into the comments. Virtu shares fell 3.8% during the day.
In payment for order flow, or PFOF, online brokers receive payments from high-speed trading companies in exchange for sending them stock orders and options from their customers. Trading companies benefit from trading against the orders of investors by collecting a small difference between the purchase and sale prices of the shares.
PFOF is legal and has been common in the U.S. brokerage industry for decades. But it drew attention this year after the commercial frenzy of GameStop Corp. and other meme actions would drive the examination of the management of small investor operations.