Robinhood stock traded at $9.73 while Virt stock traded at $23.15 as of 02:02 PM EDT on Thursday.
Virtu stock (NASDAQ:VIRT) and Robinhood stock (NASDAQ:HOOD) both increased 7.3% and 8.6% in premarket trading on Thursday as a result of media reports that the Securities and Exchange Commission may decide against outright banning payment for order flows.
According to the payment-for-order-flow concept, high-frequency trading companies like Virtu Financial (NASDAQ:VIRT) and Citadel Securities receive retail stock trade orders from brokers and execute them after receiving money from the brokers. Critics question if ordinary traders are getting the best deal, while supporters of the concept claim it gives investors more liquidity.
PFOF is a significant source of income for Charles Schwab and Robinhood (NASDAQ:HOOD) (NYSE:SCHW). It enables brokers to provide retail traders with commission-free trading. The early 2021 meme-stock trend brought the practice to light. Shares of SCHW are up 2.8% in premarket trading.
The SEC recently indicated that a ban on PFOF is no longer being considered, but they are still looking at various tweaks that would make the technique less lucrative, according to Bloomberg, which cited people familiar with the matter. According to the new group, its proposal would be made public in the coming months.
The SEC is more likely to concentrate on improving the process’ transparency. According to Bloomberg, it is also mulling a reform that would reduce the access costs that exchanges charge brokerages to conduct trades for certain equities.
Gary Gensler, the chair of the SEC, stated in June that he had ordered his staff to consider reforms that would force brokerages to direct retail stock orders into open auctions. A PFOF prohibition, according to Gensler, was “on the table” in August 2021.
Robinhood Stock Outlook
After the Securities and Exchange Commission decided not to outlaw payment for order flow arrangements, Robinhood stock is trading nearly 9% higher. Now that it has been revealed, Robinhood is a significant source of income for the company. According to Bloomberg, after months of internal SEC discussion, the decision is a victory for brokerages. Although the regulator has not yet commented on the matter, it is anticipated that it will do so in the near future.
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