US Stock Brokers Won $3.8 Billion From PFOF Amid GameStop Craze

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 Wall Street Journal, the 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 Securities, the market maker founded by Ken Griffin.

Last year’s windfall — fueled by the army of retail marketers who generated massive gains at companies like GameStop and AMC — was a 33% gain over the previous year, according to the data.

The broker that collected the most from the sale of client orders was Charles Schwab, who received $1.7 billion from his brokerage units TD Ameritrade and Schwab, according to the Journal. Robinhood, the retail app at the center of the meme mania, 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 traders who said paying order flow comes with an inherent conflict of interest and prevents investors individuals to obtain 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. Retail investors claimed the two conspired against them, while Citadel Securities dismissed the allegation as a conspiracy theory.

The U.S. Securities and Exchange Commission has weighed a payment ban for order flow since the meme stock frenzy last year.

Dolores W. Simon