Dec. 26, 2022
December 26, 2022
I am in favor of this proposal. Please vote yes.
FINRA: Hey, Morons. Quit being so blatant with your market manipulation that retail can figure it out. They are going to sue us to the stone age, the mfing STONE AGE Its so bad we have to make this notice to act like we're doing something about the greatest fraud in history, but we know this will hold up like a fart in a hurricane when the wind changes. FFS do better to hide it so we can continue to act like we're looking for it P.S. Also, please try to pretend like the $10k fine actually scares you. The poors are starting to realize that $10k isnt actually a lot of money.
https://preview.redd.it/buj7ishg21a71.png?width=827format=pngauto=webps=93b59367e9eb608eca7206f42a0c883f97f0366e
I've often criticized (including to FINRA and SEC personnel) the fact that most brokers are only identifying good-enough prices and good-enough execution, not best execution. It looks like FINRA is echoing that here.
The most important passage is this one, in my mind:
https://preview.redd.it/5vifzigm21a71.png?width=834format=pngauto=webps=287d21a3796169c4a6c51b3ca49d38e2bc188107
Let me explain something quickly. When Citadel or Virtu gets an order from a retail broker, they have a profit margin on that order. Let's say the spread is $0.02 wide, and they think they can make $0.015 per share, on average. Of that $0.015, they want $0.01 per share as profit to keep, and are willing to pay back $0.005 per share to the broker. (all of these numbers are made up, for illustrative purposes)
Citadel and Virtu don't care if they are sending that $0.005 per share to the broker as price improvement (where the retail investor receives it) or payment for order flow (where the broker receives it).
FINRA is saying that brokers CANNOT negotiate higher payment for order flow instead of price improvement. This is actually a big deal, because it's the foundation of Robinhood's business model. If they have to provide the same price improvement as, say, Fidelity, who doesn't accept PFOF, then they'll go out of business. The fundamental paradox between a firm that accepts PFOF and one that doesn't is that the firm that doesn't gives its customers better execution prices, and therefore better execution. So a firm that accepts PFOF, by definition, cannot be providing best execution. It's mathematically impossible.