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SEC reportedly not seeking to ban payment for order flow

Yahoo Finance Live anchors discuss reports that the SEC is not seeking to ban payment for order flow.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: Shares of Robinhood and Virtu Financial are checking higher after the US Securities and Exchange Commission, according to Bloomberg, is going to stop short of banning payment for order flow. It's a big victory for brokerages that get paid for processing rights. And just a little mini Yahoo U, if you will--

BRAD SMITH: Hey.

JULIE HYMAN: --a reminder of what payment for order flow is. Effectively, it used to be had to pay for trades.

BRAD SMITH: Yes.

JULIE HYMAN: Remember those days? Yes, you had to pay for trades at one point in time. But now, you mostly don't anymore if you're a retail investor. The cost of that, though, is because nothing in life is free, is that sort of bulk trades or then the order flow, if you will, is routed through certain big exchanges that then make money on that. Companies like Citadel, for example. So that's how the cost is transmitted.

BRAD SMITH: Right.

JULIE HYMAN: And there was talk of maybe making that illegal because it meant potentially that people weren't getting the best price--

BRAD SMITH: Right.

JULIE HYMAN: --on their trades.

BRAD SMITH: Because it would just go to the highest bidder for that actual order flow, instead--

JULIE HYMAN: Right.

BRAD SMITH: --of actually getting the trader, the investor, the best price execution.

JULIE HYMAN: Yes.

BRAD SMITH: And so with that in mind-- and we were tracking shares of Robinhood. Of course, this had really come to light especially after the Reddit trading frenzy that ensued at the top of 2021, and some of the run on, and the subsequent halt in specific names. And so with that in mind, we've been tracking shares of Robinhood they are holding on to those gains right now. Virtu also another one that we're keeping a close eye on.

And it really kind of kicked off this wave of regulatory looking under the hood, if you will, for what had been allowed to go on for so long, whether that was payment for order flow unchecked at least or even some of the clearing.

T+2, that was something that had gotten a lot more attention from the regulatory clearinghouses. But then additionally, from retail investors just wanting better time to clear so that they're not stuck waiting for the actual trades to be executed at the end of the day. And to get and to capitalize on the best price, which would be the case if you were in a high volatility era, especially if you were seeing prices fall to the downside, too.

JULIE HYMAN: Yeah, so SEC Chair Gary Gensler had signaled that they would be examining this issue of payment for order flow.

BRAD SMITH: Yeah.

JULIE HYMAN: There was a lot of talk about it, a lot of complaints on the part of the meme stock traders about the likes of Citadel Securities, what was their interest? Duh, duh, duh, duh. But all of that now seemingly coming to nothing.

BRAD SMITH: Yeah.

JULIE HYMAN: So it's interesting that there was this sort of overhang on the likes of Robinhood and the others that now seemingly is being removed. And I-- who knows what, if anything-- I mean, will the SEC come out and comment on this process?

BRAD SMITH: Right.

JULIE HYMAN: We don't even know if that's gonna end up happening. But we're gonna continue to watch this situation because it is an important one for retail investors.

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