Gary Gensler, the head of the US Securities and Exchange Commission (SEC), did not rule out in an interview with Barron’s a complete ban on the sale of order flow by brokers to market makers. Following his comment, Robinhood shares reacted with a 6.89% fall.
Most intermediaries have refused to charge transaction fees. They have moved to a model in which revenue is generated by passing information to large players such as high-frequency trading firms.
The market maker makes a trade and makes a profit from the difference between the offer price and the request price, sending part of this profit back to the broker.
Gensler says that “an innate conflict of interest” cannot be ruled out, however, he did not specify whether the SEC can find cases where investors have suffered losses.
He added that the role of market makers is not limited to providing a small spread on every trade.