App-based retail brokerage Robinhood Markets Inc (HOOD.O) was set to make its highly anticipated market debut on the Nasdaq on Thursday.
The U.S. Securities and Exchange Commission is now scrutinizing PFOF over conflicts of interest it says are inherent in the practice.Retail brokerages send the majority of their customers' orders to wholesale brokers, rather than to exchanges, because wholesalers generally execute the orders at a slightly better price than available on exchanges. Most retail brokers also accept rebates, or payments, from wholesalers in return for their customers' orders.
Securities and Exchange Commission Chair Gary Gensler also recently expressed concerns that commission-free trading brokerages may encourage investors to trade more, in order to capture more PFOF, even if that is not in the investors' best interest.No.
The SEC said the costs to Robinhood's customers "might have exceeded any savings they might have thought they'd gotten from zero commission trading." Robinhood settled without admitting or denying the charges.Sign up for our newsletter Subscribe for our daily curated newsletter to receive the latest exclusive Reuters coverage delivered to your inbox.
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