Robinhood Markets Stock Gains 4% On News That SEC Won't Ban Payment For Order Flow

Shares of financial services company Robinhood Markets, Inc. (HOOD) gained over 4 percent on Thursday's trading on news that SEC won't ban payment for order flow.

HOOD is currently trading at $10.33, up $0.41 or 4.13%, on the Nasdaq. The stock opened its trading at $10.01 after closing Wednesday's trading at $9.92. The stock has traded between $6.81 and $47.84 in the past 52-week period.

Bloomberg News reported that the SEC would stop short of banning payment for order flow. However, the regulator might still make rule changes that could lower the profitability of the practice.

Payment for order flow (PFOF) is the compensation a broker receives for routing trades for trade execution to a particular market maker. This type of compensation structure is widely used by brokerages like Robinhood to process retail stock trades.

PFOF has been controversial as it has been called a "kickback" by its critics. The structure has come under regulatory scrutiny due to the recent meme stock trend, with critics claiming that it has created unfair conditions for retail traders.

Policymakers supportive of PFOF and several people in finance who have a favorable view of the practice have defended it for helping develop new investment apps, low-cost trading, and more efficient execution.

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