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Robinhood's chief legal officer said that the SEC wouldn't ban payment for order flow

Robinhood's chief legal officer said that the SEC wouldn't ban payment for order flow

September 14, 2021: Robinhood’s chief legal officer, working at the SEC, said the back-end payment brokerages receive for directing clients’ trades to market makers ultimately benefit retail investors.

The Securities and Exchange Commission is “going to conclude that payment for order flow is undoubtedly a perfect thing for retail investors, and they’re not going to ban it,” Robinhood’s Dan Gallagher told CNBC on Monday.

Order flow payment is one of Robinhood’s most significant revenue sources and the way the millennial-favored stock trading app can provide zero-commission trading. Payment for order flow is a controversial practice that has garnered attention from regulators and Main Street.

Banning the payment for order flow “is on the table,” Gallagher said. “I think they’re going to take a deep look at this issue. I think, by law, they have to go through a very arduous process,” Gallagher added.

SEC chair Gary Gensler told Barron’s in the previous month that payment for order flow has “an inherent conflict of interest.” Gensler said that banning the practice is not off the table.

“At Robinhood, the lifeblood of a no commission, no minimum balance brokerage. This is what has brought in a whole new generation of investors,” added Gallagher.

Following an epic short squeeze in GameStop’s stock in January that forced Robinhood to limit trading on specific securities, Robinhood CEO Vlad Tenev was forced to testify to the U.S. House Financial Services Committee. Legislators criticized payment for order flow for the conflict it has with market makers like Citadel Securities.

“The notion that our customers are stupid, that they need protection, that they need the government and the nanny state to come out and save them for making the wrong decisions, I think they’re insulted,” said Gallagher.

Gallagher told CNBC that if he still worked for the SEC, he would have investigated the people and institutions he claims lied about the GameStop short squeeze.

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