Robinhood shares up 9% as SEC reportedly scraps plan to limit PFOF deals

Quick Take

  • Shares in Robinhood were trading at $10.92 at the open on Thursday.
  • The stock jumped following news that the SEC is set to allow Wall Street firms to continue to make payment-for-order-flow deals.

Robinhood shares soared at the open on Thursday following news that the U.S. Securities and Exchange Commission (SEC) won't limit it in making payment-for-order-flow (PFOF) deals.

Shares in the retail investing platform traded up 9.3% on Thursday, trading at $10.92 on the open, up from $9.92 at the close on Wednesday.

The stock rose sharply following a report from Bloomberg saying the SEC won't limit Wall Street firm's making payment-for-order-flow deals, a major part of firms such as Robinhood and Charles Schwab's business models. This system allows Robinhood to offer commission-free trading.

Shares in market maker Virtu Financial, which benefits from executing trades for the likes of Robinhood,  jumped on the open — up almost 8% per Nasdaq data via TradingView. 

This system has been criticized for routing orders through a handful of large electronic trading firms that are paying the broker, and not giving retail traders the best price. Robinhood previously settled with the SEC for $65 million over its failure to disclose its PFOF activity, and failing "to satisfy its duty to seek the best reasonably available terms to execute customer orders."

SEC chair Gary Gensler had proposed an auction system to replace PFOF. This would see trading firms compete to fill orders similar to the options market, in an effort to increase competition and ensure retail traders received a better price.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.