Warren presses Citadel CEO Griffin about relationship with Robinhood, fee for order stream

Sen. Elizabeth Warren, D-Mass.

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Senator Elizabeth Warren (D-Mass.) Puts pressure on Citadel CEO Ken Griffin about the financial giant’s relationship with Robinhood, how Citadel can benefit from their relationship, and how to protect private investors.

In a letter sent Thursday, Warren said she was particularly interested in the potential conflict of interest between Citadel’s hedge fund side, which has invested $ 2 billion in short seller Melvin Capital for its GameStop losses, and Citadel Securities, a “Pay for Order Flow” practitioner for Robinhood.

“Both Robinhood and Citadel have denied Citadel played a role in that decision – but Congress and the public deserve clarity about the process and the rationale behind these Robinhood decisions, which had a significant impact on many individual investors,” said Warren in a six-page letter.

Warren also asked Griffin about the controversial, yet legal, way Robinhood and other brokers make money through trades despite falling commissions: paying for the flow of orders. Robinhood and other brokers are big beneficiaries of this revenue model, receiving payments from market makers like Citadel Securities.

“The cash flow model raises questions about inherent conflicts of interest and whether broker-dealers like Robinhood and market makers like Citadel Securities benefit from fast trading and churn unrelated to the underlying values ​​of the company’s stocks being traded or the profits of individual investors: It is instead a business practice in which ‘[t]The more stocks they see, the more breadcrumbs they take, “wrote Senator Warren.

Warren’s letter arrives hours before Griffin will testify to the GameStop controversy before the US House Financial Services Committee on Thursday at 12 p.m. ET.

Warren sent another letter to the Financial Industry Regulator (FINRA) on Thursday asking how the organization focused on Robinhood’s role in market volatility and its decision to restrict trading in certain stocks during the GameStop madness. will react.

Warren asked FINRA, which licenses and regulates brokerage deals, to conduct a review to ensure Robinhood’s practices comply with existing broker-dealer laws and regulations.

“Given several findings that Robinhood has violated the broker-dealer rules and that there are no systems in place to comply with those rules, the public should understand the steps FINRA has taken to ensure Robinhood’s future compliance and whether Robinhood is improving its systems and reacts to it. ” The numerous complaints from regulators and lawmakers and the question of whether persistent violations of market rules may have contributed to the company’s role in recent market volatility, “Warren wrote in her 12-page letter to Robert Cook, President and CEO of FINRA.

– with reports from Kate Rooney of CNBC.

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