NYT DealBook
by Andrew Ross Sorkin, column no link
Snippet:
The S.E.C.’s push for changes is an indirect attack on “payment for order flow,” a long-controversial practice on Wall Street. It allows brokerages like Robinhood to sell the right to execute retail investors’ trades to bigger firms and wholesalers like Citadel Securities, potentially allowing them to profit by betting against less powerful and well-informed players.
Many are already grumbling about the prospective changes. Robinhood’s fee-free trading is made possible in great part by revenue from payment for order flow. So while eliminating that practice could restore trust, as DealBook has suggested, brokers would need to develop new business models. (A Robinhood spokeswoman declined to comment.) Some major wholesalers told DealBook that the S.E.C. had refused their input, but the big trading firms argue that the reported fix would only hurt the little guys. “The view is that payment for order flow somehow compromises market integrity, but the evidence shows that retail investors are getting a good deal,” the former S.E.C. chief economist S.P. Kothari told DealBook.