Brokerages jump on report SEC stops short of banning PFOF deals

(Reuters) -Shares of retail brokerage Robinhood Markets Inc and market maker Virtu Monetary jumped following a media report that the U.S. Securities and Alternate Fee (SEC) will cease wanting banning payment-for-order-flow (PFOF).

The SEC should enact different modifications that make the apply much less worthwhile, Bloomberg Information reported on Thursday, citing folks acquainted with the matter. The regulator had mulled over the controversial apply for months that critics consider creates conflicts of curiosity. (https://bit.ly/3LwinJn)

Retail brokers route most buyer orders by way of wholesale brokers than exchanges, as wholesalers usually provide a barely higher worth. Most retail brokers additionally settle for rebates, or funds, from wholesalers in lieu of orders.

Shares of Robinhood Markets Inc, which makes round 75% of its income from PFOF, climbed 5%, whereas Virtu Monetary added 9%.

PFOF drew new scrutiny final yr when a military of retail buyers went on a shopping for spree of “meme shares” like GameStop and AMC, squeezing hedge funds that had shorted the shares.

Many buyers had bought the shares utilizing commission-free brokers like Robinhood that settle for PFOF from a couple of highly effective market-makers.

Britain, Canada, and Australia have already banned PFOF, whereas SEC Chairman Gary Gensler had recommended in August that the regulator might go that route.

Chair Gensler mentioned in his latest Congressional testimony that he believes it is acceptable to have a look at methods to clean up the SEC’s guidelines to make fairness markets honest, environment friendly, and aggressive as doable for buyers, significantly for retail buyers, mentioned an SEC spokesperson.

To that finish, suggestions about greatest execution, charges and rebates, cost for order stream and order-by-order competitors are few of the issues being thought-about, the spokesperson added.

(Reporting by Mehnaz Yasmin and Medha Singh in Bengaluru; Enhancing by Uttaresh.V and Shailesh Kuber)