Robin Hood CEO defends payment for orderflow says practice is here to stay. Yes, the boy from Bulgaria Mr Vlad Tenev has struck again, saying the exact same thing that he probably shouldn't be saying, most likely enraging his own client base. Robin Hood CEO The boy from Bulgaria Vlad Tenm defended payment for order flow also known as POF saying it's inherently here to stay. That's not really defending the practice, it's just saying that it's here.

POF describes the practice of routing trades through market makers like Cital. Securities in return for a slice of the profits. it is viewed as controversial because of the perceived conflict of interest it creates between the broker and client. Now I'm no lawyer I don't speak legal e But I think it's pretty safe to say that we could cut out the word perceived conflict of interest very much seems like a hardcore conflict of interest, and that's exactly why it's banded in almost every other major.

Market Speaking with CNBC Tenev defended the practice of peef Off, saying that it's inherently here to stay. payment forward. Tolow is the practice of routing trades through market makers like Citadel Securities in return for a slice of profits. If I'm a business that's selling things and I'm generating transaction volume, the more you use it, the more money you get.

Inherently, there's a conflict there because I make more money by getting you to transact more. So he's inherently saying that yes, they use Robin Ood to kind of induce people to trade even more probably, which isn't good for them I Think it's important not to take the baby out with the bathat. What does that mean? you shouldn't make revenue on transaction-based business. That's understandable.

and I think the point has been politicized to some degree. Payment forward flow is viewed as controversial because of the perceived conflict of interest it creates between the broker and clients. Critics say that Brokers have an incentive to direct order flow to market makers offering payment for flow Arrangements over the interest of their clients. Payment for order flow is banned in the UK where Robin Hood announced plans to launch on Thursday.

It's also B in major other markets, not just the UK. The USC had looked at Banning payment forward flow in light of concern surrounding the practice, but opted not to. While the European Union has imposed a blanket ban on payment for order flow and then this is what Vlad had to say. If you look at equities, payment forward to flow in particular, it's about 5% of our Revenue so a much smaller component of the overall pie If we're diversifi the business quite a bit.

So couple things to say here. First of all, if it's so small and it makes your clients so mad from a business perspective, it shouldn't be that hard to get rid of it. Then like you yourself, you're saying it, it's a small part of the pie and if it makes your customers mad, well, maybe get rid of it. There are Brokers now who have commission-free trading that do not engage in payment for order flow.

That is a possible realistic business model I Want to be very clear about that. Another thing here is this concept of the perceived conflicts. Well, if you look at the world's major preeminent Market maker like Citadel it is a market making but then Citadel also has a hedge fund and I get it. If you talk to Ken Griffin the founder and the CEO he's going to be like no, no, no, no, There is a clear communication wall between the two.

But do any of us really believe it And then the final point is, if you want to get into the nitty-gritty of why is payment for order flow bad, it's because of this. And I'll tell you it straight up mathematically of why this is a negative thing. So when it comes to regulations and market makers and brokerages, we talk about this thing called the Nbbo the National Best Bid and Offer And that's basically are we getting an optimal spread between the bid and the ask? You want it to be as small as possible? Here's what they do. Market makers are saying yeah, it's great because with payment for order flow, we're actually improving on the Mbbo itself, so everyone should be happy.

But in reality many papers have shown this that because of payment for order flow, the bid itself, the Nbbo, the National Best Bid and offer The bid in the ask are already fictitiously widened. So basically it's as if they created their own measuring stick and then said oh no, we're doing good and they're basing it off their own measuring stick and on an individual basis, like individually for you. For me, does this like cost a lot of money? No. but when you add up portions of a Penny over all of trading, we're talking about potentially billions of dollars a year.

So between that just really, the perceived conflict of interest with okay, you have market makers also running a hedge fund and that gets a little bit wonky. Does Robin Hood really care about their client or do they care about who's paying them as in someone like Citadel So that's the perception of conflict and also Vlad has said it himself. The way their business model works is they would love to get their clients to actively trade more something that most likely the average Trader shouldn't be doing the more you trade. Probably better chance of you losing money and yet he's even admitted himself.

Their business model is to try to really not really dup or trick but try to entice people to actively trade more I Don't get it. This boy from Bulgaria Mr Vlad Tenev. He either has no PR team or the worst PR team ever because anytime this guy pokes his head up from his wretched little hole, he says the dumbest stuff, the worst stuff he does not understand the retail trading Community He does not understand his clientele. He doesn't get who he servicing and you could tell that from his commentary where he always says the dumbest stuff time and time and time again.

I I Don't get it I I Truly don't understand what goes on in this dude's head at all I Think that it's a little bit early to tell I mean it's just been a few weeks, but we have seen some movement in the cryptocurrency markets of course. uh Ai and technology stocks. Um, have seen a concentrated rally through uh, most of the year. um, and you know we're We're seeing that our customers are, uh, continue to be resilient.

So um, I think in in the UK We're really excited to to see what the adoption will be like. We think that there's a ton of excitement, uh, and uh, when we go live, we think that there will be a a really useful value proposition that we have to offer. Can I ask you a bit more about Crypto I Mean it's becoming a a very interesting space going into next year? Robin Hood has been described as a a crypto whale or Bitcoin whale thanks to a very large Bitcoin wallet. What sort of demand are you seeing ahead of the harving of Bitcoin next year and possible? ETF Story on voting? Yeah, I mean Robin Hood In the US Uh has been uh, a large and early entrance into the crypto market and we've continue to build through the winter with our non-custodial wallet on- ramping technology, and uh, the improvements we've made in how we communicate our pricing.

Advantage Just like uh, every other product I mentioned uh, from stocks and options to retirement, Crypto for Robin Hood has the same value to customers, the industry leading economics coupled with great user experience, and we've been proud to see Market share gains uh over the past year and we think that that puts us very well positioned when we see rallies like this. to uh, add value to customers and and to the business Market share gains are one thing given the competition has been hit by various different regulatory probes. But what genuine demand are you seeing now as we look to close that 2023 for Crypto products I mean I think in the uh past few weeks you have seen crypto prices going through a little bit of a rally. Generally speaking, when there is a rally, uh, you do see retail investors jumping in and participating and and trading crypto more.

Um, but again, uh, we're not very focused on on these rallies, it's it's really about making sure that we're building for the long term and continuing to improve the service quality, the customer support that we offer, continuing to to innovate on behalf of our customers, and making Robin Hood the best place to invest in in in the US markets both for us customers and and for the UK Market Bits though are being placed around some sort of look like a dude that just hates his life Bitcoin next year, how do you stand a benefit from that and do you think it's going to happen I mean I Think that uh a Bitcoin ETF is likely to be uh watching this is equal to supporting ad option because infastructure for institutions uh, having access access to to this asset class has been limited and kind of difficult and cumbersome to integrate. So I think from from that sense, we do expect it to be to be helpful. Um. on the other hand, if you look at retail customers which is the the market that we serve in the US at least Robin Hood has been making uh Bitcoin and other cryptos available directly uh at very low use Robin Hood for crypto I Feel like Over My Dead Body Would I use perhaps is a different story.

It's been quite a year in terms of the fortunes of Binance and FDX major players in the crypto space. What can you say about the wash up of the regulatory problems and how it impacted the sector in 2023? I mean I I Think that uh, cleaning out some of the Bad actors are getting hit. Uh be very good for the industry I Think um, good actors that are continuing to push the industry forward and progressing in a compliant fashion, working with regulators and uh, protecting customers to the best of their abilities. Um, why do he dead in his eyes? The necessary ingredient to making this asset class? Uh, truly globally accepted and Robin Hood has been leading in that we've been working with.

Regulators We've been very prudent about assets that we offer, not offering lending and and other sort of uh R just hit a new in and I think you're seeing the the fruits of that. As you know, other players that have been unscrupulous to say the least are are falling away just about AI in terms of Robin Hood itself. What technology are you seeing at this point on the AI side, change the way ret trading retail investing takes place? Yeah, AI is, uh, a very transformative technology I Mean we We've encountered several platform shifts over the past few decades. Uh, the previous large one which was the rise of mobile um really gave birth to Robin Hood In a way I mean in our space, mobile has been the fastest growing segment in the US at least.

and in the UK with the launch, we believe that will continue. Robin Hood has solidified its position as a leading mobile broker. Uh, through that platform shift and I think AI stands to do something even more transformative. I Mean really, if you think about it, Um, human beings, uh, in in any business and any offering have provided intelligence.

and there's lots of of areas where technology can't fully automate everything, Where where humans have been filling the gaps. So as these AI systems become more and more intelligent. Um, and we should expect that to continue to follow a curve similar to Moors law over time. Uh, you should see more of the things that uh, have traditionally been done by humans.

uh, augmented by by machines. And uh, Robin Hood has many teams working on this. Of course, we're very pro-human We we believe that there's always going to be a role for humans to provide high level service. Rob But I think um, we're very excited about the potential to do more for for customers and uh, deliver more products and services at higher quality.

and I think companies that are early to that stand to benefit tremendously. I Think as a technology company, Robin Hood's perhaps in the best position out of anyone in financial services I Doubt it. So Robin Hood is an AI stock. Just to be clear, Um Robin Hood is a consumer company technology company and we'll make use of of, uh, any technology that that's available to improve the product and and the lives of our customers.

Um, so I think in a sense, 5 years down the road. um, every stock will be uh, an AI stock in much the same way that Technology stock has almost lost its designation. I Mean if you're not using technology in this market, um, are you really doing anything that matters.