U.S. stockbrokers sold $3.8 billion worth of client orders amid meme stock craze, with Charles Schwab ahead of Robinhood with the most PFOF gains

U.S. brokers raked in billions of dollars selling client orders amid the meme stock craze a year ago, new data shows.

According to Bloomberg Intelligence data reported by the the wall street journalthe top 12 brokers made a total of $3.8 billion in 2021 from order flow payment, with a large portion of that payment coming from Citadel Securitiesthe market maker founded by Ken Griffin.

Last year’s bonanza was fueled by the army of retail traders who made massive gains in companies like GameStop and CMA was a 33% gain over the previous year, according to the data.

The broker that collected the most from selling client orders was Charles Schwabwhich received $1.7 billion from its TD Ameritrade and Schwab brokerage units, the Journal reported. Robin Hoodthe retail app at the center of the meme stock craze, came a distant second, raking in $974 million.

Order flow payment is the practice by which market makers, like Citadel Securities, execute trades for retail investors and collect the difference between the bid and ask price, a portion of which is paid to brokers like Charles Schwab and Robinhood.

The practice essentially allows retail investors to trade for free. It came under intense scrutiny last year from regulators and even retail merchants who said order flow payment comes with a inherent conflict of interest and prevents individual investors from obtaining the best price execution.

Citadel Securities, according to the data, was the biggest payer last year in the order flow payout model, distributing $1.5 billion to the 12 brokers.

Robinhood and Citadel Securities were at the center of fury from retail traders last year after the trading app stopped buying stocks from meme like GameStop, causing prices to plummet. The retail investors claimed the two conspired against them, while Citadel Securities dismissed the complaint as a conspiracy theory.

The United States Securities and Exchange Commission has weighed a ban on paying for order flow since the meme stock frenzy last year.

Dolores W. Simon