- Robinhood CEO Vlad Tenev endorsed an SEC push to refine stock pricing, writing that the move would “level the playing field” for retail investors.
- SEC chair Gary Gensler has suggested the agency might waive a rule requiring exchanges to price stocks in pennies.
- Allowing sub-penny pricing would put exchanges like Robinhood on equal footing with market makers like Citadel and Virtu Financial, Tenev wrote.
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Robinhood CEO Vlad Tenev endorsed an SEC push to refine how stocks are priced, writing in a blog post that the move would “level the playing field” for retail investors.
Tenev backed a suggestion by SEC Chair Gary Gensler that the agency might waive a rule requiring exchanges to price stocks in pennies. Allowing sub-penny pricing would put exchanges like Robinhood on equal footing with non-exchange market makers like Citadel and Virtu Financial, he argued.
Earlier this month, Gensler acknowledged that the rule banning sub-penny pricing on exchanges could constitute an unearned advantage for non-exchange market makers. He said the SEC would consider changes to the rule, though no formal proposal has yet been offered.
Tenev called for all stock quotes to be given to four decimal places, or a hundredth of a penny.
Such a change – once considered too insignificant to matter – could smooth trades on low-price, high-volume shares with minuscule bid-ask spreads. In these trades, non-exchange market makers can benefit by undercutting exchanges’ bids by a fraction of a penny.
“If the sub-penny limitation is removed, and exchanges reduce fees for retail orders, we could see tighter [bid-ask spreads], even better execution quality for retail investors, more transparency and perhaps more retail order flow executed on lit markets,” Tenev wrote.
Robinhood routes its order book to non-exchange market makers in exchange for compensation, a model known as payment for order flow. Gensler has questioned the setup, noting it is non-transparent and banned in the UK and Canada.
Market makers contend that their profits come only when they succeed in cutting prices for clients – or retail investors, in the case of Robinhood.