The Robinhood trading platform could lose a significant source of income if the US Securities and Exchange Commission prohibits the controversial Payment for Order Flows (PFOF) – the routing of retail trade orders to market makers.
Brokers like Robinhood often use this practice to offset trading fees, thus offering their retail customer base commission-free trading.
Robinhood’s IPO filing, according to the Wall Street Journal on Wednesday, revealed that the broker earned 81% of its first-quarter revenues from paying streams of orders for stocks, options and crypto. As Cointelegraph reported, Robinhood filed for an initial public offering on Thursday.
SEC Commissioner Gary Gensler has previously criticized the practice, and the GameStop saga earlier this year also put the matter in the spotlight. In fact, the company paid an SEC fine of $ 65 million in December after alleging Robinhood misled retail customers about using PFOF.
Meanwhile, Robinhood has stated that any action by the SEC against PFOF, including strict regulations or an outright ban, could have a negative impact on its business. Paying for order flow is a prohibited practice in jurisdictions such as Canada and the United Kingdom.
Uncertainty about the SEC’s stance on PFOF under Gensler is the latest hurdle for Robinhood on its IPO. Back in June, the SEC’s investigation into the company’s crypto trading business allegedly delayed its IPO filing.
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In fact, Robinhood’s crypto division saw significant growth in 2021, with its first quarter performance being six times the quarter. Back in April, the company announced a new Chief Operating Officer to oversee its expanding cryptocurrency trading businesses.
As Cointelegraph previously reported, the US financial regulator fined Robinhood $ 70 million in June. The FINRA fine was reportedly due to “widespread and significant damage” attributed to the company against thousands of its users.