Robinhood rises after report that SEC will not ban payment for order flow

Robinhood rises after report that SEC will not ban payment for order flow

A woman holds a smartphone with the Robinhood logo in the background.

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Shares of retail brokerage Robinhood rose on Thursday after a report that US regulators would not ban payment for order flow, a key part of the company’s business model.

Bloomberg News reported that the Securities and Exchange Commission would stop short of banning pay-for-order flow, though the regulatory agency may still make rule changes that could reduce the practice’s profitability.

Robinhood shares rose 2.4% in morning trading.

Paying for order flow is a controversial practice that effectively allows market makers and brokerage firms to split profits made on retail client trades. It is a key source of income for Robinhood and other low-cost brokerage firms, helping them offer trading with no upfront cost.

SEC Commissioner Gary Gensler has criticized the practice and questioned whether payment relationships between market makers and brokerage firms were affecting the execution price of clients’ trades.

“Our markets have moved to zero commission, but that doesn’t mean it’s free. There is still pay below these apps. And it doesn’t mean it’s always the best execution,” Gensler told CNBC’s “Squawk on the Street” last year.

Robinhood and the SEC did not immediately respond to requests for comment.

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