Why Are Robinhood Shares Falling Today?

Robinhood’s commitment to ‘democratizing investing’ could be at risk once more after the SEC Chair hinted at further possible restrictions.

Aug. 31, 2021

Like some poor contestant on ‘Wipeout’, Robinhood is being hit from all sides this week as the commission-free trading platform faces down a big rival, as well as the SEC. 

Can Robinhood survive this onslaught?

Let’s not hit the panic button 

Robinhood is far from being in survival mode just yet, but yesterday’s barrage of bad news certainly won’t be good for ol’ Vlad Tenev’s ticker. 

First off, we have the very real threat from PayPal, one of the world’s most-used and well-established payment services, which is reportedly exploring the possibility of allowing users to trade stocks. With 337 million active users as of the end of 2020, compared to Robinhood’s 21.3 million as of July, it’s a real David v.s. Goliath story — if David was kind of a jerk.

But that could be a long way down the line, with Robinhood facing a far more clear and present danger in the form of that pesky Securities and Exchange Commission. 

The SEC Chair, Gary Gensler, yesterday told news outlet Barron’s that banning the controversial practice of payment for order flow (PFOF) is “on the table.”

PFOF is the compensation that a brokerage (Robinhood) receives from market makers for sending over trade orders to them for execution. Basically, Robinhood’s revenue would be at massive risk. 

Gensler has alluded to such measures for several months now, ever since Robinhood’s CEO was brought in to testify in front of the U.S. Financial Services Committee back in February. However, many experts are speculating that this would be too extreme a measure to pass. 

Since going public last month, Robinhood’s share price has jumped more than 20%, but weeks like this will be sure to test even the staunchest bull.

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