Citadel Griffin and Robinhood respond to GameStop meme stock flap

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The saga has drawn attention to the complex machinery behind the execution of transactions. Robinhood sends client orders to Citadel Securities and other trading companies to be executed, and accepts compensation from those companies in what is known as Payment for Order Flow.

While other retail brokerages such as Charles Schwab Corp. also use such deals, this is particularly important to Robinhood, accounting for around three-quarters of its revenue last year and 80% in the first half of 2021, according to the documents filed.

The payment of order flow, which critics say poses potential conflicts of interest, is under renewed scrutiny by Securities and Exchange Commission chairman Gary Gensler, who said ‘a ban was possible. Last week, Scion Asset Management’s Michael Burry said he received a subpoena from the SEC in an investigation into the meme stock madness.

Separately, Tenev defended his company’s business model in a Wall Street Journal editorial on Tuesday. Paying for order flow, he writes, allows the company to offer commission-free, no-account minimum trades, “which has helped a new generation of retail investors get started.”

Banning the practice, he said, “is unlikely to help retail investors get better prices and would likely re-erect barriers that have kept so many people from entering the market.”

Responding to criticism that Robinhood lures inexperienced investors in with gambling tactics to get them to trade more, he wrote: “Investing isn’t a game, but does it have to be dark and hard to understand?

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