Robinhood Markets’ share price has tanked a little over 5% in two trading sessions so far this week, as investors fear comments by the Securities and Exchange Commission (SEC) may result in the trading platform losing revenue. Robinhood share price nose-dived 6.9% on Monday before recovering marginally on Tuesday. SEC Chairman Gary Gensler told Barron’s that payment for order flow has “an inherent conflict of interest”. Gary Gensler further said a complete ban of the controversial payment for order flow (PFOF) practice is “on the table”. The recently listed Robinhood Markets was trading at $44.32 per share at the closing bell on Wall Street. Robinhood made its stock market debut a month ago.
The retail brokerage firm, unlike traditional brokerage firms, sends orders placed on its platform by customers to wholesale brokerages rather than the exchanges — a practice otherwise known as PFOF. SEC Chairman noted that through this practice wholesale brokers get the data, and also the chance to have the first look at it. In such a situation, the SEC Chairman said, the brokerage firm gets to match off buyers and sellers out of that order flow. “That may not be the most efficient markets for the 2020s,” Gensler told Barron’s.
Robinhood Markets, after debuting on Wall Street in the last week of July, has so far gained 15% from its IPO price of $38 apiece and 23.4% from its listing day lows. Robinhood Markets sold 52.4 million shares through the IPO, raising close to $2 billion. The Co-founders of the company, Vlad Tenev and Baiju Bhatt, sold about $50 million worth of holdings each.
To add to Robinhood’s woes, CNBC on Monday reported that Paypal was exploring a possible stock trading platform that could put it in direct competition with Robinhood. The report added that Paypal has hired Rich Hagen, the co-founder of TradeKing, an online brokerage firm, as it moves towards launching a trading platform. Earlier last year, Paypal had launched a platform that enabled investors to buy and sell cryptocurrencies. Paypal’s stock price has surged nearly 4% in two trading sessions this week.
The drop in Robinhood’s share price is possibly being seen as an investment opportunity by large investors. According to the daily trading update provided by ARK Investment Management, the firm purchased 260,084 equity shares of Robinhood on Tuesday for the ARK Fintech Innovation ETF. The investment firm run by Cathie Wood holds 920,967 equity shares of Robinhood, valued at $40.8 million on market closing yesterday.