This is essentially the opinion of Thomas Peterffy, founder and president of Interactive Brokers Group Inc. IBKR,
, on the challenges facing the Securities and Exchange Commission in considering eliminating a decades-old Wall Street practice: order flow payment.
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“I don’t see how he gets there without wrapping a lot of feathers.”
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In an interview with MarketWatch, Hungarian-born billionaire Peterffy, who was one of the pioneers of computerized securities trading, said he does not see a ban on the payment of order flow or PFOF, which occurs under the tenure of President Gary Gensler because implementing restrictions can be too difficult. And even with an established policy, institutions could continue to come up with solutions.
“The only thing [Gensler] What we could do is force all operations to take place in exchanges, “Peterffy said. Even then, operations could be further internalized or brokers could establish other agreements with market makers, he said.
The comments from Peterffy, who owns about 75 percent of Interactive Brokers Group and has a net worth of $ 20 billion, according to Forbes, come after a report by Grandpa Salzman de Barron offered the clearest view of the Gensler’s view on paying for order flow since he was a juror. as president of the SEC in mid-April.
Gensler told Barron’s, in an interview published Monday, that the total ban on payment of order flow was “on the table” as part of a broader review of the agency.
These payments have been closely related to online brokers such as Robinhood Markets Inc.
The practice allows brokers to offer commission-free services to individual investors.
At PFOF, online brokers accept payments from high-speed trading companies in exchange for routing stock orders and options from their customers. As The Wall Street Journal has explained, trading companies make a profit by collecting the small difference between the spread or the price at which the shares are bought and sold. Under SEC rules, companies cannot hedge or sell orders at prices worse for the customer than the best price available on a stock exchange, which is known as the best offer or domestic offer or NBBO.
Commercial companies also gather valuable information about market momentum and sentiment, which also worries critics.
Gensler told Barron’s that the PFOF has “an inherent conflict of interest.”
Market makers “get the data, get the first glance and manage to match buyers and sellers of this order flow,” he said. “This may not be the most efficient market for the 2020s.”
In June, the SEC chairman said the regulator was reviewing the practice. Gensler said practice
Peterffy says Interactive Brokers offers investors who use their platform a choice: 0% commission or pay a commission and get better execution on trades.
The founder of Interactive Brokers said that the fact that the largest amount of trading takes place off the public stock exchanges is part of the broader payment for the issuance of the order flow. He suggested that banks were unlikely to be eager to make changes to the market structure that would force more trading in public or illuminated markets because this would reduce the revenue of their off-the-shelf platforms.
“I don’t see how he gets there without ruining a lot of feathers,” Peterffy said of efforts to ban payment of order flow and make negotiation more transparent.
“I do not think so [Gensler] he likes so much operation to be done in the dark, ”the veteran investor said.
Peterffy says one solution to shedding more light on over-the-counter trading is to provide a marked execution monthly publication against the NBBO in all changes, light or dark. This would provide more complete disclosures about price execution and show how much the average customer pays based on volume-weighted or VWAP average prices.
Peterffy speculated that just removing PFOF without driving further trading on public stock exchanges would likely result in companies like Citadel Securities buying Robinhood or Charles Schwab SCHW,
buying companies like Virtu Financial VIRT,
Commercial service agreements where Robinhood, for example, pays Citadel for commercial services, could also be used as solutions to the PFOF ban.
Shares of Robinhood were up 0.3% on Tuesday, while Virtu Financial, a high-speed trading site that has been one of PFOF’s most vocal advocates, was down 1%. In comparison, the Dow Jones Industrial Average DJIA,
and the S&P 500 SPX,
fell by about 0.1%, and the Nasdaq COMP composite index,
it finished less than 0.1% lower on Tuesday.
PFOF came under greater scrutiny following an increase in stock trading-focused volatility such as GameStop Corp. GME,
earlier this year and later AMC Entertainment Holdings AMC,
on platforms like Robinhood.