Shares of Robinhood surged Thursday following a report from Bloomberg that the U.S. Securities and Exchange Commission will refrain from banning payment for order flow.
The report said that new rule proposals aimed at creating more competition and price transparency for retail traders in the stock market would fall short of banning a practice whereby market makers pay brokers like Robinhood for the privilege of executing trades.
The SEC did not immediately respond to a request for comment.
Shares of Robinhood Markets Inc.
HOOD,
were up more than 8% in early morning trade.
The news could also be a boon for market makers like Virtu Financial Inc.
VIRT,
and Citadel Securities which make a small profit on the spread between the price at which they’ll buy and sell a security. These companies pay for retail order flow because it is typically uncorrelated with the broader market and therefore less risky.
Shares of Virtu were also up more than 8% in morning trade.
Market makers like Citadel Securities, Virtu and Two Sigma now execute more than 90% of retail trades, SEC Chairman Gary Gensler said in a June speech.
While some argue that payment for order flow has enabled brokers to offer no-commission trades, Gensler has argued that money saved on commissions can sometimes be reduced through suboptimal pricing.
