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STOCK MARKET NEWS:
Citadel’s Ken Griffin defends controversial Wall Street practice, says firm would adapt if it were outlawed
Throughout Thursday’s GameStop hearing, Castle Securities’ Ken Griffin protected a controversial approach brokerages utilize to generate income, and stated his firm would adapt if brand-new guidelines forbade the practice.
Legislators lastly got a possibility to push Robinhood, Castle and Reddit chiefs about the GameStop trading debate.
Members of Congress invested much of their time prodding about “payment for order flow,” a practice in which a brokerage gets payment from a market maker, referred to as a dealership, for directing the order to them.
This design is how Robinhood and other brokers have the ability to have commission-free trading.
Robinhood made more than $221 million from payment for order circulation in the 4th quarter of 2020. On The Other Hand, Castle Securities is a market maker.
“We simply play by the rules of the road,” stated Griffin. “Payment for order flow had been expressly approved by the SEC, it is a customary practice within the industry,” he stated, describing the Securities and Exchange Commission. “If they choose to change the rules of the road, we need to drive on the left side versus the right side, that’s fine with us.”
“I do believe that payment for order flow has been an important source of innovation in the industry. As the CEO of Robinhood has testified, they drove the industry toward zero-dollar commissions. This has been a big win for American investors,” Griffin included.
Griffin was pushed by Rep. Brad Sherman, D-Calif., about the “best execution” practice of the marketplace maker.
Sherman prodded about whether Robinhood customers get even worse execution due to the fact that Robinhood utilizes the zero-commissions income design supported by payment for order circulation. Sherman stated after talking to market specialists, when brokers are being spent for order circulation, consumers worsen execution.
Griffin stated “the quality of execution varies by the channel of the order” and “size of the order is only one factor.”
The Castle chief began to state that due to the fact that the Robinhood order originates from a neighborhood of specific traders who tend to negotiate in smaller sized dollar quantities, that might impact the execution. Nevertheless, he was disrupted by an upset Sherman.
Robinhood CEO Vlad Tenev echoed Griffin’s belief, describing why Castle gets a big part of the firm’s trades.
“Our system routes orders based on who provides the best execution and quality for our customers. The reason Citadel gets a relatively high percentage of our customer order flow is because they provide superior execution quality,” stated Tenev.
A modification to the payment for order circulation legality would present a significant threat to the leader of complimentary trading.
“Payment for order flow enables commission-free trading,” Tenev included. “When we started people didn’t think there was enough margin to make this business work, but we’ve been fortunate to make it work and make it work for our customers.
Robinhood’s trading restrictions
Representatives repeatedly asked Tenev if the millennial stock trading app restricted trading for any other reason than to meet depository requirements.
Tenev cited increased capital requirements from the Depository Trust and Clearing Corp., an entity responsible for settling and clearing trades, for the trading restrictions. Robinhood raised more than $3.4 billion in a few days to shore up its balance sheet and drop some of the restrictions.
“That extra capital…was totally to get ready for a future, even higher, black swan occasion and to unrestrict on the trading and purchasing of these securities,” said Tenev. “The $3.4 billion we raised I believe goes a long method in cushioning the firm for future market volatility and other comparable black swan occasions.”
He told the representatives that the GameStop mania was a one in 3.5 million event, which he said was “unmodelable.” Tenev said Robinhood’s risk management processes kicked in as they were designed.
The Robinhood chief was pressed about why the trading app restricted on the buy side of GameStop last month.
“Purchasing securities increases our security requirements, offering does not,” said Tenev. “Furthermore, avoiding consumers from selling is an extremely tough and unpleasant experience where consumers are not able to access their cash…I envision it would have actually been substantially even worse if we had actually avoided consumers from selling.”
Tenev said the majority of Robinhood clients are engaged in buy and hold investing strategies with only about 13% trading in the options market and only about 3% trading on margin.
“We’re likewise a self-directed brokerage, so that suggests we do not supply guidance and we do not make suggestions for what consumers need to or need to not buy,” stated Tenev.
The overall worth of Robinhood’s consumers’ possessions goes beyond the net quantity of cash its customers have actually transferred into Robinhood by over $35 billion, he included.
Tenev likewise promoted for real-time settlement rather of two-day settlement in order to assist fight a few of the mayhem that happened throughout the GameStop legend.
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Throughout Thursday’s GameStop hearing, Castle Securities’ Ken Griffin protected a controversial approach brokerages utilize to generate income, and stated his firm would adapt if brand-new guidelines forbade the practice.
Legislators lastly got a possibility to push Robinhood, Castle and Reddit chiefs about the GameStop trading debate.
Members of Congress invested much of their time prodding about “payment for order flow,” a practice in which a brokerage gets payment from a market maker, referred to as a dealership, for directing the order to them.
This design is how Robinhood and other brokers have the ability to have commission-free trading.
Robinhood made more than $221 million from payment for order circulation in the 4th quarter of 2020. On The Other Hand, Castle Securities is a market maker.
“We simply play by the rules of the road,” stated Griffin. “Payment for order flow had been expressly approved by the SEC, it is a customary practice within the industry,” he stated, describing the Securities and Exchange Commission. “If they choose to change the rules of the road, we need to drive on the left side versus the right side, that’s fine with us.”
“I do believe that payment for order flow has been an important source of innovation in the industry. As the CEO of Robinhood has testified, they drove the industry toward zero-dollar commissions. This has been a big win for American investors,” Griffin included.
Griffin was pushed by Rep. Brad Sherman, D-Calif., about the “best execution” practice of the marketplace maker.
Sherman prodded about whether Robinhood customers get even worse execution due to the fact that Robinhood utilizes the zero-commissions income design supported by payment for order circulation. Sherman stated after talking to market specialists, when brokers are being spent for order circulation, consumers worsen execution.
Griffin stated “the quality of execution varies by the channel of the order” and “size of the order is only one factor.”
The Castle chief began to state that due to the fact that the Robinhood order originates from a neighborhood of specific traders who tend to negotiate in smaller sized dollar quantities, that might impact the execution. Nevertheless, he was disrupted by an upset Sherman.
Robinhood CEO Vlad Tenev echoed Griffin’s belief, describing why Castle gets a big part of the firm’s trades.
“Our system routes orders based on who provides the best execution and quality for our customers. The reason Citadel gets a relatively high percentage of our customer order flow is because they provide superior execution quality,” stated Tenev.
A modification to the payment for order circulation legality would present a significant threat to the leader of complimentary trading.
“Payment for order flow enables commission-free trading,” Tenev included. “When we started people didn’t think there was enough margin to make this business work, but we’ve been fortunate to make it work and make it work for our customers.
Robinhood’s trading restrictions
Representatives repeatedly asked Tenev if the millennial stock trading app restricted trading for any other reason than to meet depository requirements.
Tenev cited increased capital requirements from the Depository Trust and Clearing Corp., an entity responsible for settling and clearing trades, for the trading restrictions. Robinhood raised more than $3.4 billion in a few days to shore up its balance sheet and drop some of the restrictions.
“That extra capital…was totally to get ready for a future, even higher, black swan occasion and to unrestrict on the trading and purchasing of these securities,” said Tenev. “The $3.4 billion we raised I believe goes a long method in cushioning the firm for future market volatility and other comparable black swan occasions.”
He told the representatives that the GameStop mania was a one in 3.5 million event, which he said was “unmodelable.” Tenev said Robinhood’s risk management processes kicked in as they were designed.
The Robinhood chief was pressed about why the trading app restricted on the buy side of GameStop last month.
“Purchasing securities increases our security requirements, offering does not,” said Tenev. “Furthermore, avoiding consumers from selling is an extremely tough and unpleasant experience where consumers are not able to access their cash…I envision it would have actually been substantially even worse if we had actually avoided consumers from selling.”
Tenev said the majority of Robinhood clients are engaged in buy and hold investing strategies with only about 13% trading in the options market and only about 3% trading on margin.
“We’re likewise a self-directed brokerage, so that suggests we do not supply guidance and we do not make suggestions for what consumers need to or need to not buy,” stated Tenev.
The overall worth of Robinhood’s consumers’ possessions goes beyond the net quantity of cash its customers have actually transferred into Robinhood by over $35 billion, he included.
Tenev likewise promoted for real-time settlement rather of two-day settlement in order to assist fight a few of the mayhem that happened throughout the GameStop legend.
Enjoy the complete statement here.
Subscribe to CNBC PRO for unique insights and analysis, and live organization day programs from all over the world.
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question, you know it's been at least
15 years since I've been following the news, no 10 my folks do that, hmm. what was the question again !?
where you read about this ?
of course I can, it was here
on U-S-NEWS.COM
