Robinhood & PFOF Congressional Scrutiny

Robinhood & PFOF Congressional Scrutiny

The Financial Services Committee of the United States House of Representatives held a public hearing on February 19, 2021, when the PFOF, as Robinhood did, was the main topic of discussion. Frequently, members of the Democratic Alliance committee questioned whether the practice resulted in lower transactions costs for individual retailer customers, while voicing concerns that the Robinhood free model promotes excessive trade that could be harmful to its customers over time.

Robinhood CEO Vlad Tenev and Kenneth Griffin, founder of Citadel Securities, a major marketing company used by Robinhood, argue that Citadel Securities offers higher murder rates to Robinhood customers, better than exchanges. Tenev said "Citadel offers high quality performance" and that Robinhood will automatically move trading away from Citadel Securities if other market makers provide better performance. In addition, he provided statistics showing that most Robinhood customers are long-term investors than active traders.

However, the SEC reached an agreement with Robinhood in 2021 through PFOF. The agency had charged Robinhood for making insufficient disclosure to customers and receiving the highest share of market maker at its PFOF deals from 2015 to 2019 more than any other trading company.

Note that, during the Feb. 2 hearing. 19, 2021 Griffin Tenev & members of the committee made reference to the Citadel  without specifying that the Citadel Securities is a business with a market maker relationship with Robinhood.