Vlad Tenev, co-founder and CEO of Robinhood, rings the opening bell on the Nasdaq on July 29, 2021.
Supply: The Nasdaq
Robinhood CEO Vlad Tenev says he would not imagine that the fee for order move (PFOF) mannequin of market-maker routing that the corporate incorporates within the U.S. is underneath risk.
That is regardless of calls from notable client buying and selling advocates and regulators for a ban on the observe.
Talking with CNBC, Tenev defended the observe of PFOF, saying that it is “inherently right here to remain.” PFOF is the observe of routing trades by way of market-makers like Citadel Securities in return for a slice of the earnings.
“If I am a enterprise that is promoting issues, and I am producing transaction income, the extra you employ it, the more cash you get. Inherently, there is a battle there as a result of I earn more money by getting you to transact extra,” Tenev advised CNBC in an interview.
“I believe it is necessary to not take the child out with the bathwater. What does that imply, you should not make income on a transaction-based enterprise? That is unreasonable. And I believe the purpose has been politicised to a point.”
PFOF is considered as controversial due to the perceived battle of curiosity it creates between the dealer and purchasers.
Critics say that brokers have an incentive to direct order move to market makers providing PFOF preparations over the pursuits of their purchasers.
PFOF is banned within the U.Ok., the place Robinhood introduced plans to launch Thursday.
The U.S. Securities and Alternate Fee had checked out banning PFOF in gentle of considerations surrounding the observe, however opted to not, whereas the European Union has imposed a blanket ban on PFOF.
PFOF accounts for a small chunk of Robinhood’s revenues right now, Tenev mentioned, whereas a lot of its revenue right now comes from internet curiosity revenue which is generated from money in person balances.
Transaction-based revenues, which incorporates PFOF, decreased 7% in Robinhood’s second fiscal quarter to $193 million.
“When you have a look at equities, PFOF particularly, it is about 5%. of our income, so a a lot smaller part of the general pie. And we have diversified the enterprise fairly a bit,” together with different areas like securities lending, margin, and subscriptions.
Robinhood’s race to the underside on fee charges has pressured many main gamers within the wealth administration world to slash their very own charges to zero, in flip inflicting some corporations to wind up or promote as much as opponents.
TD Ameritrade was bought to Charles Schwab for $26 billion, whereas Morgan Stanley purchased E-Commerce for $13 billion.
“Within the U.S., Robinhood got here alongside and actually modified the trade,” Tenev mentioned. “The low cost brokers which can be charging commissions primarily ceased to exist.”
“They needed to drop commissions to zero. Lots of them could not survive that transition as standalone corporations and ended up consolidating. And we’re nonetheless dwelling by way of the the top results of that.”
