Baiju Bhatt and Vlad Tenev attend the Robinhood Markets Stock Exchange Day on July 29, 2021 in New York City.
Cindy Ord | Getty Images
Robinhood’s chief legal officer, who used to work for the SEC, said the back-end payment brokers they receive for directing clients ’operations to market makers are ultimately an advantage for retail investors.
The Securities and Exchange Commission “will come to the conclusion that paying for the flow of orders is certainly an incredibly good thing for retail investors and that they will not ban it,” Robinhood’s Dan Gallagher told Squawk Box of CNBC.
Payroll flow is one of Robinhood’s biggest sources of revenue and the way the millennial-favored stock trading app is able to provide zero-commission trading. Paying for order flow is a controversial practice that has caught the attention of regulators and the main street.
The ban on payment for order flow “is on the table,” Gallagher said. “I think they will delve deeper into this issue. I think, by law, they have to go through a very tough process.”
SEC President Gary Gensler told Barron last month that payment for the order flow has “an inherent conflict of interest.” Gensler said banning the practice is not off the table.
“A Robinhood, [payment for order flow] it is the lifeblood of a commission without intermediaries, or of a minimum balance broker. This is what has led to a new generation of investors, “Gallagher added,” I think the overwhelming evidence is that the current market structure works well for retail investors. “
After an epic compression of GameStop shares in January that forced Robinhood to limit trading in certain securities, Robinhood CEO Vlad Tenev was forced to testify before the House Financial Services Committee. United States in February. Lawmakers criticized the payment for the order flow because of the conflict it has with market makers like Citadel Securities.
“The idea that customers are stupid, that they need protection, that they need the government and the nanny state to come out and save them to make bad decisions, I think they are insulted,” Gallagher said.
Gallagher told CNBC that if he still worked for the SEC, he would investigate the people and institutions he claims he had lied about the narrowing of GameStop.
Shares of Robinhood did not change in pre-market trading, after closing Friday at $ 41.17.