Vlad Tenev, CEO of Robinhood, defended the practice of payment for order flow (PFOF) by asserting that it is an accepted implementation that's not going away. PFOF describes the act of sending client trades through market-makers such as Citadel Securities in exchange for a portion of the profits. This system has attracted criticism due to its potential for promoting a conflict of interest between the broker and the individuals they work with.
Vlad Tenev, CEO of Robinhood, has defended the model of payment for order flow (PFOF) that the company employs in the U.S. despite calls to abolish it from trading advocates and regulators. In an interview with CNBC, he commented that it is "inherently here to stay" as it is a transaction-based business from which one can generate revenue. He added that the issue has been "politicised to some degree".
Critics of PFOF argue that brokers have an incentive to direct order flow to those offering PFOF over the interests of their clients, leading to a conflict of interest. As such, it has been prohibited in the U.K. and the EU has imposed a blanket ban on the practice.
Tenev stated that PFOF only contributes to a small percentage of Robinhood's revenue today, with most of its income generated from net interest income of cash in user's balances. In fact, it was reported that transaction-based revenues, including PFOF, accounted for only 7% of Robinhood's second fiscal quarter.
Tenev added that the entrance of Robinhood in the U.S. led to the abolishment of commission fees for many, causing some to wind up or get sold to competitors. As an example, TD Ameritrade was purchased by Charles Schwab for $26 billion and Morgan Stanley acquired E-Trade for $13 billion.
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