Brokers jump on SEC stoppage report before it bans PFOF deals

Brokers jump on SEC stoppage report before it bans PFOF deals

(Reuters) – Retail brokerage stocks Robinhood Markets Inc (NASDAQ πŸ™‚ and market maker Virtu Financial (NASDAQ πŸ™‚ jumped following a media report that the US Securities and Exchange Commission (SEC) will stop blocking payment-for-order flow (PFOF).

Bloomberg News reported Thursday, citing people familiar with the matter, that the Securities and Exchange Commission may continue to make other changes that make the practice less profitable. The regulator has pondered this controversial practice for months, which critics believe creates a conflict of interest. (https://

Retail brokers route most customer orders through wholesale brokers rather than exchanges, with wholesalers generally offering a slightly better price. Most retail brokers also accept rebates, or payments, from wholesalers instead of orders.

Shares of Robinhood Markets Inc, which generates about 75% of its revenue from PFOF, rose 5%, while Virtu Financial added 9%.

PFOF attracted fresh scrutiny last year when an army of retail investors spied a wave of buying “Mim stocks” like GameStop (NYSE: NYSE:) and AMC, putting pressure on hedge funds that were discounting the shares.

Many investors have bought shares using commission-free brokers like Robinhood who accept PFOF from a few powerful market makers.

Britain, Canada and Australia have already banned PFOF, while SEC chief Gary Gensler suggested in August that the regulator might go down that route.

Chairman Gensler said in his recent testimony to Congress that he believed it was appropriate to consider ways to revamp the SEC’s rules to make stock markets as fair, efficient and competitive as possible for investors, especially for retail investors, an SEC spokesperson said.

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To that end, recommendations regarding best execution, fees and discounts, payment for order flow, and on-demand competition are some of the things being considered, the spokesperson added.

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