The newly appointed chairman of the U.S. Securities and Exchange Commission has put several fintech companies on notice for possible future crackdowns.
SEC Chairman Gary Gensler said Friday that companies such as Robinhood and Citadel Securities could be placed under increased scrutiny over their business practices under the Biden era.
The official, who was personally endorsed by Senator Elizabeth Warren, expressed concerns over the conflicts of interests in the payment-for-order flow business model of online brokerages that seemingly do not charge commissions.
"These are not free apps. They are just zero-commission apps. The cost is inside the order execution," Gensler said during a congressional hearing over the recent GameStop stock issue.
Robinhood and Citadel Securities were caught in the middle of a scandal earlier in the year after a surge in the trading of low-value stocks fueled by social media. Robinhood's decision to restrict trades drew regulatory attention, particularly on how it generated revenue by routing orders to high-speed trading companies.
Robinhood markets itself as a zero-commission trading platform. The company repeatedly touts that it is creating huge savings for individual investors and it is instrumental in opening up stock trading to the masses.
Gensler said he plans to "take a closer look" at the operations of these companies, including practices that are currently banned in both Canada and the U.K. Gensler is known to be one of the toughest regulators during the Obama era and he is expected to be as tough in the Biden era.
Apart from looking at the companies' business practices, Gensler also expressed his intention of looking into the dominant positions of the companies. Gensler pointed out that Citadel Securities executes a staggering 47% of all retail trade volume nationwide.
"Concentration could lead to more fragile markets, meaning less orderly, and also more costly or less efficient, markets. That's what history and economics tell us when we get concentration," Gensler said.
Gensler said Citadel Securities could have "growing data advantages over other market participants." Citadel Securities previously said it is willing to follow any change in the rules and it doesn't care about the fate of payment for order flow.
