The SEC is addressing the possibility of banning PFOF (payment for order flow).
Citadel and other institutions are speaking out.
Gary Gensler said there may be a conflict of interest for brokers and that too much power is concentrated in a handful of market makers.
The SEC Chairman could be re-routing retail investors into an automated system that would provide a deep pool of liquidity.
If this goes through, it will be historic.
Let’s discuss it.
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SEC Payment For Order Flow ban
Gary Gensler will be speaking on Wednesday in regard to best execution for market orders.
The SEC has been under heavy scrutiny by retail investors as the agency has not made any progress to level the playfield.
The government branch that’s supposed to protect retail investors has even gone as far as taunting investors for buying ‘meme stocks’ recently.
But industry participants have quietly been saying that Gensler will likely use a speech at the Piper Sandler Global Exchange Conference on Wednesday to float several proposals.
These may include best execution and payment for order flow according to CNBC.
Last year during the ‘meme stock’ frenzy, Citadel processed retail’s orders through Robinhood.
Citadel paid Robinhood to give them those orders (PFOF).
However, retail investors don’t want their orders going to Citadel since the market maker/hedge fund/dark pool are short on ‘meme stocks’.
90%-95% of retail’s orders are not processed though the lit exchange.
Citadel takes these orders and trades them at a bargain through foreign exchanges.
Although PFOF is an expense to them, they make a lot more money processing the orders.
If the SEC PFOF ban goes through, orders would not be processed by Virtu or Citadel.
Citadel fights back
A spokesperson for Citadel Securities released the following statement to CNBC:
“It is important to recognize that the current market structure has resulted in tighter spreads, greater transparency, and meaningfully reduced costs for retail investors. We look forward to reviewing the proposals and working with the SEC and the industry towards our longstanding objective of further improving competition and transparency.”
“You need to be very deliberate on that approach,” Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association (SIFMA) said.
“We have been calling for a review of market structure for some time, but let’s be careful not to try to fix things that may not be broken,” he said. “The retail investor is getting a better deal than they ever have.”
Would you pay small trading fee if it meant Citadel and Virtu no longer reroute your orders to benefit their pockets?
Leave a comment below.
The statement alone that retail is getting a better deal than ever before is such a dishonest thing to spew.
These institutions have been taking retail’s money, using it against them, all while taking no accountability for their actions.
It’s not clear yet whether the SEC PFOF ban will go through or not.
It is certainly something worth discussing though, don’t you think?
Leave your thoughts below.