PayPal news and SEC’s scrutiny sends Robinhood tumbling

Shares of Robinhood Markets Inc tumbled nearly 7% on Monday.

Robinhood shares fell on news that PayPal Holdings Inc may start an online brokerage and a report saying regulators were looking at a possible ban on a practice that accounts for the bulk of the company’s revenue.

Shares of Robinhood extended an early decline after CNBC reported that PayPal was exploring ways to let U.S. customers trade individual stocks on its platform.

Robinhood shares fell further after Gary Gensler, chair of the U.S. Securities and Exchange Commission, told Barron’s in an interview published on Monday that payment for order flow has “an inherent conflict of interest.”

Retail brokers such as Robinhood send their customers’ orders to wholesale brokers rather than exchanges in the controversial practice known by the acronym PFOF.

Gensler said that in addition to making a small spread on each trade, wholesalers or market makers also get data, the first look at a trade and the ability to match buyers and sellers from the order flow they pay retail brokers.

The SEC is scrutinizing PFOF over concerns it may incentivize brokers to send customer orders to trading platforms that maximize their own profit instead of providing customers the best execution for their trades.

Shares of Robinhood closed down 6.9% at $43.64.

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