The United States’ Securities and Exchange Commission (SEC), the federal markets anti-manipulations agency, will be integrating new capital market rules. The order came directly from Chairperson Gary Gensler, whose goal is to ultimately guarantee a fair market competition between brokers and exchanges.
Gensler disclosed, during a virtual conference organized by Piper Sandler, that his agency is aiming at making fair equities and to motivate market participants to embrace new market models. Moreover, he wishes to set some ground rules for the “best execution” and “national best bid and offer” models, but especially for the controversial “payment-for-order-flow” system.
Especially, the payment-for-order-flow strategy has seen some controversy around the Robinhood saga earlier this year. This model, utilized by the Robinhood brokerage, sees market orders being rerouted to private trading platforms in return for fees, leading to charge-free trading services. The model can potentially lead to a conflict of interest, for example in the scenario where the broker sends the market order to a given private platform offering the best fees but not the best execution for traders.
As a result of Robinhood concealing its payment-for-order-flow strategy and not offering what is best for users, SEC penalized the company by a total of $65 million. Despite this, Robinhood is still hanging on to the model.