Robinhood calls for shares to be quoted in hundredths of a penny

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The chief executive of Robinhood Markets Inc. addressed the ongoing debate over over-the-counter transactions on Thursday, saying financial regulators should allow public exchanges to quote securities in hundredths of a dime in order to “standardize the prices. rules of the game”.

In a statement on the Robinhood blog, Vlad Tenev said the online brokerage firm supports changing rule 612, which was passed by the Securities and Exchange Commission in 2005 and generally prevents stock exchanges from listing prices by increments of less than a penny.

Meanwhile, over-the-counter platforms – where trades of individual investors, including those of Robinhood clients, are often executed – are able to buy and sell stocks for less than a dime.

“In a nutshell, the exchanges cannot compete fairly with over-the-counter market makers in the execution of our clients’ orders,” said Mr. Tenev.

The debate about where and how transactions are routed has recently received increased attention, in part due to the rush of individual investors into the market this year.

Market watchers have increasingly focused on a practice called payment for order flow, from which online brokers such as Robinhood make money by routing client orders to e-commerce companies. . While the practice is common in the brokerage industry, Robinhood in particular has found itself at the center of the payment for order flow debate this year.

Online brokerage firms and e-commerce companies claim that the practice benefits small investors by executing their trades at prices slightly higher than they would get elsewhere. Yet the concept has also come under intense scrutiny over concerns that hijacking stock exchange trades makes markets less transparent. Almost half of the volume of trade in the United States is now conducted outside public exchanges, a share that has increased in recent years.

Recently confirmed SEC Chairman Gary Gensler presented an in-depth review of the market structure this month and suggested that non-professional investors might get better prices if more trades are done on the exchanges.

“The question is whether our stock markets are as efficient as they could be, in light of technological changes and recent developments,” Gensler said at an industry conference this month. this. He also said the SEC’s review would look at the minimum price increases that exchanges are allowed to offer.

Under Rule 612, exchanges can only display stock prices in fractions of a cent if a security is trading below $ 1 per share. Mr Tenev said on Thursday that if the sub-cent limits were removed, “we could see … maybe more retail order flow executed in informed markets.”

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