Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Biden's Wall Street cop is putting Robinhood on notice

Biden's Wall Street cop is putting Robinhood on notice

Gary Gensler, the newly installed chairman of the Securities and Exchange Commission, put Robinhood and Citadel Securities on notice Thursday about a potential crackdown in the Biden era.

Gensler, whose nomination was endorsed by Senator Elizabeth Warren, repeatedly expressed concern about the "inherent" conflicts of interest that exist in the payment-for-order flow business model used by Robinhood and other brokerages that don't charge commissions.

"These are not free apps. They are just zero-commission apps. The cost is inside the order execution," Gensler told lawmakers during the latest congressional hearing investigating the GameStop saga.

The controversial trading restrictions imposed by Robinhood earlier this year drew attention to how some brokerages receive revenue in exchange for routing orders to high-speed trading firms like Citadel Securities.

Gensler, who was known as the toughest regulator of the Obama era, promised to "take a closer look" at payment for order flow and noted that both Canada and the United Kingdom banned the practice. He also pointed out that not all zero-commission trading apps use the business model.

Robinhood and others in the industry argue zero-commission trading has created huge savings for individual investors and opened up trading to the masses.

Yet critics worry that it's really the big Wall Street players that are winning out. Gensler's comments suggest he sympathizes with that concern.

"There are costs. It's like an iceberg: Most of the iceberg is below the surface," the SEC chief said. "The costs are below the surface."

'Dominant' position held by Citadel Securities


Gensler also pledged to look into concerns about the broader structure of the modern stock market, including the "dominant" position held by Citadel Securities, the market maker owned by billionaire Ken Griffin.

The SEC chairman specifically called out the fact that Citadel Securities executes a staggering 47% of all retail trade volume. The Chicago firm is the biggest source of revenue for Robinhood.

"Concentration could lead to more fragile markets, meaning less orderly, and also more costly or less efficient, markets. That's what history and economics tell us when we get concentration," Gensler said.

Moreover, Gensler signaled concern about the information Citadel Securities holds due to its dominant position.

"There is one online search engine in America that most of us go to. That firm has data advantages," he said. "Now, in the middle of our capital markets, one firm in the retail order flow may have growing data advantages over other market participants."

Isaac Boltansky, director of policy research at Compass Point Research & Trading, said the talk about market concentration "will be a concern for Citadel" going forward.

"The dial was turned one peg louder on the concentration issue," Boltansky said in an email.

Citadel Securities has previously suggested it doesn't care about the fate of payment for order flow.

"We simply play by the rules of the road," Griffin said during a February hearing on GameStop. "If they choose to change the rules of the road, we need to drive on the left side versus the right side, that's fine with us."

A Citadel Securities spokesperson declined to comment.

Game-like features in trading


Like other regulators, Gensler expressed unease over the embedding of game-like features into trading apps to increase customer engagement. He asked SEC staff to look into these issues.

Regulators in Massachusetts have accused Robinhood of using images of confetti and other techniques to "entice and induce inexperienced customers into risky trading." Massachusetts is seeking to revoke Robinhood's broker-dealer license in the state — a move the startup fiercely opposes. Robinhood has
recently ended its practice of using confetti to celebrate first trades and other milestones.

Gensler noted that this so-called gamification is not exclusive to trading apps, though the stakes are higher.

"The streaming apps figured out a long time ago that I'm kind of a rom-com guy," said Gensler. "You thought I was a thriller guy, but it's rom-com. If I lose an hour and a half and it was a lousy rom-com, alright."

Yet gamification in trading can have more significant effects on investors' finances, Gensler argued.

Robinhood's representatives were not immediately available to comment on the hearing.

The trading app has repeatedly defended itself by pointing to how its platform allowed countless new investors to participate in financial markets.

"We look forward to engaging with the SEC as they consider matters involving retail investors and market structure," Robinhood said in a statement. "To the extent the SEC decides that regulatory changes may be necessary, we intend to participate through the public notice and comment rulemaking process."

Despite the increased scrutiny, Robinhood continues to enjoy explosive user growth, especially in cryptocurrencies. The startup confidentially filed to go public in March, setting the stage for a highly anticipated IPO.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Spain and Morocco Trade Blame After 72,000 Migrants Enter Ceuta
AI Is Remaking the US Economy, From GDP Growth to iPhone Prices
Europe’s Heat and Drought Are Now Disrupting Power, Shipping and Tourism
Europe’s Drying Rivers Trigger Power Cuts, Factory Shutdowns and Wildfire Emergencies
Record-Low Danube Forces Nuclear Cuts and Emergency Power Curbs
Danube Drought Forces Hungary’s Paks Nuclear Plant Into Full Shutdown
Ceuta Death Toll Rises as Spain and Europe Clash Over Border Response
Valued at $109 Million: F-35B Fighter Jet Crashes in Southern California
Record-Low Danube Exposes Probable Mammoth Remains in Bulgaria
US Says It Has Carried Out Heavy Strikes on Iran After Attempted Attacks on Its Forces
The AI User Nightmare: Private Claude Conversations Leaked to the Internet
Over 24 Hours in the Air: Qantas Airbus Completes Record-Breaking Test Flight
Massive Wildfires Ravage Southern Europe: Fatalities in Greece and Evacuations Across France, Spain, and Turkey
Nvidia Reportedly Takes Vast Texas Data-Centre Lease to Underwrite AI Expansion
FIFA’s Private-Investment Plan for World Cup Rights Draws European Revolt
Apple Briefly Crosses Five Trillion Dollar Valuation as Investors Retreat From AI Bets
Fresh Heatwave Threatens to Rekindle France’s Historic Wildfire Crisis
Following OpenAI's Cyberattack: 'Most Companies Still Do Not Understand What Is Coming'
OpenAI Sued After ChatGPT Allegedly Discouraged Emergency Care Before Near-Fatal Embolism
Miliband Sets Climate and International Law at Centre of UK Diplomacy
Czech Central Bank Governor Rejects Early Euro Entry and Rate-Cut Pressure
Trump Readies New Tariffs as Temporary Global Levy Nears Expiry
Vivienne Westwood Casts Cicciolina, 74, in Its New Autumn Campaign
Dejavu: Germany’s Military Expansion Reshapes Europe’s Strategic Balance With France
Morgan Stanley Builds a Wall Street Lead in AI Infrastructure Finance
High Prices Push Coffee Drinkers Toward Whole Beans and Home Brewing
Trump Draws Boos and Podium Scrutiny at Spain’s World Cup Triumph
Brilliant move: Péter Magyar Moves to Nominate Chess Grandmaster Judit Polgár as Hungary’s President
Spain Defeats Argentina in Extra Time to Win Second World Cup
Current AI Seeks to Build an Open Global AI Infrastructure Outside Big Tech Control
Germany’s Economic Malaise Reopens the Sunday Shopping Debate
Proposed U.S.-Saudi Nuclear Pact Could Permit Limited Uranium Enrichment Under International Safeguards
Netherlands Declares Water Shortage Emergency After Drought Pushes Rivers to Historic Lows
Why Kentucky Fried Chicken Became KFC—and Why the False Explanations Persist
Ukrainian Drones Strike Wildberries Warehouses Deep Inside Russia
Reported CIA Mission Helped Clear the UAE’s Path to Advanced US AI Chips
Artificial Intelligence Capital Fuels Markets While Governments and Regulators Face Mounting Strategic Tests
China’s Moonshot’s Kimi K3 Narrows the Gap With Anthropic Through Scale, Openness and Lower Cost
The Ledger Will Not Trust on Faith
Trump Administration Pressures Banks to Restrict Financial Access for Undocumented Immigrants
Passenger Bound for Germany Refused to Sit Beside a Woman on a Plane — Then Slapped a Flight Attendant
Ukraine’s Leadership Rift Spills Into the Streets as Protesters Target Army Chief
Ukrainian Drone Barrage Kills Eight and Strikes Russian Logistics Network
The Ten World Cup Finals That Defined Football History
Smartphones Are Getting More Expensive, Sales Are Collapsing, and Even Apple Admits: "Prices Will Rise"
The Monaco Bombing Has Become a Test of Ukraine’s Intelligence Accountability
Leadership Change and Strategic Rivalry Redraw the Political Map
The AI Race Enters Its Infrastructure Era
Britain Nationalises British Steel to Protect Scunthorpe Production and Strategic Supply
French National Assembly Overrides Senate to Pass Historic Assisted-Dying Legislation
×