Last July, the European Union imposed a general ban on payment for order flow in a move which has reignited long-lived discussions around the practice. And while Robinhood insists that the practice is here to stay, it hasn’t been without opposition: In 2022, the SEC proposed a series of rules which Robinhood said would “crimp payment for order flow” and continue to rouse regulators in Washington.

These new rules would be very bad for brokers. Robinhood, in particular, made $785 million in transaction revenue last year. If the SEC’s proposed rules were implemented, they would threaten what has historically been Robinhood’s largest source of operating revenue. As a result, it’s starting to plan for a world without PFOF.

The problem with PFOF

In the early days of stay-at-home orders, Robinhood became a centerpiece of pandemic pop culture, capitalizing on a new wave of retail investors who wanted to turn their stimulus checks into shares of high-flying growth stocks. For a period of time that was enormously lucrative: in the five quarters from Q2 2020 to Q2 2021, Robinhood made nearly $1.5 billion from transaction revenues (namely, payment for order flow).

Robinhood’s boom times went bust when it became a convenient pariah in the eyes of users and the media for the GameStock stock fiasco. In Q1 2021, the company froze trading on a number of popular stocks, like GameStop and AMC Entertainment, citing volatility that arose from a retail short squeeze. Soon, users charged that Robinhood was colluding with “the suits” to sell out its users — and while that alone didn’t cause the debacle, it had actually somewhat been the case for a while.