Robinhood CEO defends payment for order flow, says practice is 'here to stay'
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Robinhood CEO Vlad Tenev says he doesn't believe that the payment for order flow (PFOF) model of market-maker routing that the company incorporates in the U.S. is under threat.
That's despite calls from notable consumer trading advocates and regulators for a ban on the practice.
Speaking with CNBC, Tenev defended the practice of PFOF, saying that it's «inherently here to stay.» PFOF is the practice of routing trades through market-makers like Citadel Securities in return for a slice of the profits.
«If I'm a business that's selling things, and I'm generating transaction revenue, the more you use it, the more money you get. Inherently, there's a conflict there because I make more money by getting you to transact more,» Tenev told CNBC in an interview.
«I think it's important not to take the baby out with the bathwater. What does that mean, you shouldn't make revenue on a transaction-based business? That's unreasonable. And I think the point has been politicised to some degree.»
PFOF is viewed as controversial because of the perceived conflict of interest it creates between the broker and clients.
Critics say that brokers have an incentive to direct order flow to market makers offering PFOF arrangements over the interests of their clients.
PFOF is banned in the U.K., where Robinhood announced plans to launch Thursday.
The U.S. Securities and Exchange Commission had looked at banning PFOF in light of concerns surrounding the practice, but opted not to, while the European Union has imposed a blanket ban on PFOF.
PFOF accounts for a small chunk of Robinhood's revenues today, Tenev said, while much of its income today comes from net interest income which is generated from cash in user balances.
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