The CEO of Robinhood, Vlad Tenev, asserts that he sees no danger to the market-maker routing mechanism known as payment for order flow (PFOF), which the company uses in the US.
Even still, prominent proponents of consumer trade and authorities have called for a prohibition on the activity.
In an interview with CNBC, Tenev defended PFOF, asserting that it is “inherently here to stay.” The practise of routing trades through market makers, such as Citadel Securities, in exchange for a profit share is known as PFOF.
“The more you use it, the more money you get if I’m a business that sells stuff and generates transaction income. I make more money by pushing you to transact more, so there’s naturally a conflict there, Tenev said in an interview with CNBC.
“I believe it’s crucial to avoid giving the infant bath water. Does this imply that a transaction-based firm shouldn’t generate income? It’s not reasonable. In my opinion, the issue has also been somewhat politicised.
Because PFOF is thought to create a conflict of interest between the broker and clients, it is seen as contentious.
Opponents claim that brokers have a financial motive to prioritise the interests of market makers proposing PFOF arrangements over the interests of their own customers.
While the European Union has imposed a blanket ban on PFOF, the U.S. Securities and Exchange Commission had considered doing so in light of concerns surrounding the practise. Tenev noted that while PFOF makes up a small portion of Robinhood’s current revenue, the majority comes from net interest income, which is generated from cash in user balances. Transaction-based revenues, which includes PFOF, decreased 7% in Robinhood’s second fiscal quarter to $193 million.
Source (CNBC)
