The Reddit madness in stocks like GameStop Corp. and AMC Entertainment Holdings Inc. is calling on regulators to reconsider a decade-long practice on the US stock exchange: paying for the flow of orders.
The practice of high-speed trading companies paying brokerage fees for the right to execute orders submitted by mom and pop investors has long been controversial. Some say it skews brokers’ incentives and encourages them to maximize their revenue at the expense of clients. Supporters, including many brokers and trading companies, say this is misunderstood and will help investors get seamless executions and good prices on their trades.
Either way, it’s a lot of money. Over the past year, brokers such as Charles Schwab Corp., TD Ameritrade, Robinhood Markets Inc. and E * Trade have collected nearly $ 2.6 billion in payments on stock and option orders, according to an analysis of company filings filed by JMP Securities. The largest sources of funding were electronic trading companies like Citadel Securities, Susquehanna International Group LLP, and Virtu Financial Inc.
Paying for the order flow helped set the stage for manic trading in GameStop, which started the year at $ 18, climbed to a record close of $ 347.51 on Jan. 27, and closed Wednesday’s session at 92, 41 USD finished.
This is because paying for the order flow enabled the U.S. brokerage industry to switch to commission business with no commission in late 2019. She no longer had to pay a fee for stock transactions and was supported by easy-to-use trading apps like Robinhood, Individual Investors have invested in stocks and options at record levels over the past year. More recently, they have bought stocks like GameStop, which were touted on Reddit and other social media platforms.