Robinhood shares fall 9 per cent amid Paypal news and SEC ban fears
Robinhood shares have plummeted after Paypal announced it could launch a rival brokerage and the SEC said a ban on order flow is a possibility.
Robinhood, a trading platform for non-professional investors, saw its share price fell as much as 8.68 per cent from highs of $46.87 yesterday to lows of $42.80 today, after Paypal announced it is exploring how it could let US customers trade stocks using its platform.
Spiralling share prices were also the result of comments made by Securities and Exchange Commission Chairman, Gary Gensler, that a ban on order flow, the practice where brokerages sell on their customer’s orders to third parties to be executed and earn fees for doing so, is “on the table.”
Paying for order flow accounts for the majority of Robinhood’s revenue.
While the SEC has since refused to comment further, Robinhood has previously been criticised for its participation in order flow and CEO Vlad Tenev was forced to testify in front of the US House Financial Services Committee after the infamous GameStop incident.
The concern is that order flow creates an incentive for brokerages, such as Robinhood, to send customers orders to trading platforms which maximise their own profits but do not give their users the best possible service. Once purchased, trading firms can profit by trading against investors’ orders.
The news comes after Robinhood reported record revenue of $565m in the second quarter, up 131 per cent compared to last year. The bulk of its income came from commission on trades which stood at $451m in Q2.
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