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Robinhood has previously stated that the payment for order flow is a better deal than the traditional one.
Robinhood Markets Inc (NASDAQ: HOOD) stock closed yesterday trading at $43.64, down 6.89% from the day’s opening price. HOOD stock continued with the decline during the extended trading period, down approximately 1.7%, and traded around $42.90. The decline in Robinhood stock has been directly attributed to a report by news outlet Barron’s that the SEC could eliminate a controversial practice that has over the years brought in billions in revenue for the trading firms.
In an interview with the news outlet on Monday, SEC Chairman Gary Gensler said that a full ban of payment for order flow is “on the table.” Notably, payment for order flow is a practice that involves brokers sending trade orders to market makers for execution and in return earning some profit.
However, Robinhood has previously stated that the payment for order flow is a better deal than the traditional one. “We think payment-for-order flow is a better deal for our customers, vs. the old commission structure. It allows investors to invest smaller amounts without having to worry about the cost of commissions,” Robinhood CFO Jason Warnick said during the company’s virtual roadshow before its IPO.
According to Gensler, there is a conflict of interest in the payment for order flow that is adopted by Robinhood to provide its trading services. The stock trading platform has been on the regulators’ watch list after the stock market squeeze at the beginning of this year that resulted in some stock markets rising exponentially in a short period.
Robinhood Stock amid Issues with SEC
Founded almost a decade ago, the trading platform has gained popularity among young investors seeking to gain access to the stock market. The company went public a few weeks ago, after which its stock market skyrocketed in the following days. However, HOOD shares have since receded and are down approximately 6.75%, and 11.62% in the past month and five days respectively according to market analytics provided by MarketWatch.
The company has a market capitalization of around $40.09 billion and 725.29 million outstanding shares. Notably, a survey conducted by MarketWatch indicates 14 ratings gave HOOD stock market an average of Over rating.
Robinhood is striving to keep its position as a one-stop stock trading platform as other platforms pop up. Reportedly, payment giant PayPal Inc (NASDAQ: PYPL) is in the process of implementing a brokerage platform for its global customers to access the stock market.
Such and other market conditions give HOOD stock investors worry of their future growth prospects.