Regulators are going after payments for stock orders. What about crypto?

The SEC is concerned about payment for order flow in stocks and options. But crypto, which it is struggling to regulate, is a "Wild West."

Bitcoin illustration

What are you paying for your bitcoin?

Illustration: Jeremy Bezanger / Unsplash

Two of the SEC's major concerns are payment for order flow, the potentially conflict-ridden system where retail brokers get paid by market makers for sending them orders, and cryptocurrencies, the largely unregulated digital tokens that are generating a booming market in speculative trading.

What if you put them together?

That's not a hypothetical question: Robinhood, the online broker that recently went public, is already making more money from crypto payment for order flow than any other source.

SEC Chairman Gary Gensler has said the agency is scrutinizing payment for order flow, a decades-old business model that is used by large brokers like Schwab and TD Ameritrade but that Robinhood has finessed into profitable perfection. Regulators are considering all options including a ban on such arrangements, with Gensler noting that conflicts are "inherent" in a system where market makers pay retail brokers for directing trades to them, in effect splitting profits that come at investors' expense.

Cryptocurrencies were designed for peer-to-peer transactions, bypassing middlemen and marketplaces. But marketplaces have arisen nonetheless, facilitating buying and selling much like stock and currency markets do. And Robinhood, in particular, is championing the idea of extending the payment for order flow model to the crypto world.

The scope of the issue became clear when Robinhood reported that payment for order flow from crypto trading made up more than half of its second quarter transaction revenue, representing 51.7% or $233 million. That's way up from 20.8% of transaction revenue in the first quarter of 2021 and just $5 million a year ago. The runaway growth in crypto might have been less obvious had it not been for a slowing of the meme-stock craze right as interest in crypto took off.

This also has meant a shuffling in Robinhood's partners. Jump Trading's Tai Mo Shan Ltd. paid Robinhood $164 million for crypto orders in the second quarter. Robinhood's relationship with Citadel, a primary partner for stock and option payment for order flow, has gotten considerable scrutiny. But the broker's relationship with Jump Trading has drawn less attention, even as its payments exceeded what Robinhood has ever gotten from Citadel in a given quarter according to researchers at Alphacution Research Conservatory.

It's not clear that crypto payment for order flow is even on the SEC's radar, or if it could even regulate the practice, since crypto markets are not currently regulated as exchanges. Gensler has articulated a desire for Congress to give the SEC broader authority over crypto, but it's not clear when a broader regulatory remit might come.

Regulators could come after crypto brokers, but "right now all they can do is saber rattling," said Paul Rowady, founder of Alphacution. At most, the agency might go after "domestic brokers that are engaged in retail activity in the crypto market," he added.

Even then, much of the parceling out of trades is happening internationally, he said: "It's the Wild West. It's a global market with cross-border activity. Even U.S. entities potentially are engaging with crypto infrastructure that's non-U.S. That puts U.S. regulators at a disadvantage because they don't have jurisdiction."

Dealing with that "will require a coordinated effort with a global consortium of regulators, which will take a lot of time," he added.

In this fast-growing crypto market, there is little guarantee that retail investors are getting the best prices on trades. Crypto spreads can be much bigger than equities, providing more opportunity for market makers and others to profit off of retail investors.

In equities and options, brokers and market makers must disclose in public reports to the SEC who they send trades to and how much they make. Through such reports, we know Robinhood made four times as much in payments for each S&P 500 share traded as Schwab did in December 2020. Such disclosures don't exist for crypto, so it's all but impossible to know who's profiting and how much they're making.

Robinhood, for its part, has said payment for order flow in crypto enables commission-free crypto trading, which gives investors the cheapest total cost. The company declined to comment on the record for this story.

Robinhood says it doesn't route crypto orders based on payments market makers provide. "We receive uniform volume-based rebates from trading venues, but never consider rebates when deciding where to route your order," Robinhood wrote in a June blog post.

Robinhood says that its buy orders are executed as a limit order with a 1% collar to ensure prices don't differ wildly from what traders expect.

Coinbase, for its part, charges retail investors a fee of up to 1.49% plus a set fee that varies based on the size of the order. It sends retail trades to execute on its Coinbase Pro exchange, so there is no payment for order flow.

There remains the question of whether retail investors are getting the prices on crypto trades. In the equities and options world, there is the National Best Bid and Offer, an official record of the best price available on exchanges at a particular moment. The NBBO is flawed and imperfect, since it doesn't actually reflect the best price to be found anywhere — market makers operate their own liquidity pools that can yield better pricing unavailable on exchanges — but it is a formal benchmark that brokers and exchanges can be measured against. Brokers and market makers are obligated to execute most trades close to the NBBO, but often, substantial profits can be made within the NBBO spread.

In the crypto world, because crypto exchanges are not regulated as exchanges, there is no NBBO and there is no official record of the best price.

So how do investors know what they're getting? The largest brokers tend to set the prices, some experts said. Genesis Trading, for example, is one large prime broker that can set the market price, according to one crypto expert.

But spreads in crypto markets vary widely, particularly between different exchanges. There are entire trading firms that focus on arbitrage between exchanges.

As a result, large investors that are trading large blocks of crypto go to a firm like Genesis to execute trades. Those firms then break down those trades and execute them in myriad ways, depending on how big they are and how fast they need to be executed. These include trading with other brokers, sending it to exchanges such as Coinbase's or taking on the trades internally.

Small retail investors don't have a prime broker who can get them the best trades.

This frontier wildness won't last forever. Crypto companies in the U.S., as they mature, will seek to make nice with regulators, Rowady said. "There is a self-regulating nature to all this," he said. "There's legal exposure if a fiduciary doesn't make all the effort to find the best prices and best execution."

That self-interest will force institutions to make some changes, he said.

But for now, it's crypto buyer beware.


It's OK to cry at work

Our comfort with crying at work has changed drastically over the past couple years. But experts said the hard part is helping workers get through the underlying mental health challenges.

Tech workers and workplace mental health experts said discussing emotions at work has become less taboo over the past couple years, but we’re still a ways away from completely normalizing the conversation — and adjusting policies accordingly.

Photo: Teerasak Ainkeaw / EyeEm via Getty Images

Everyone seems to be ugly crying on the internet these days. A new Snapchat filter makes people look like they’re breaking down on television, crying at celebratory occasions or crying when it sounds like they’re laughing. But one of the ways it's been used is weirdly cathartic: the workplace.

In one video, a creator posted a video of their co-worker merely sitting at a desk, presumably giggling or smiling, but the Snapchat tool gave them a pained look on their face. The video was captioned: “When you still have two hours left of your working day.” Another video showed someone asking their co-workers if they enjoy their job. Everyone said yes, but the filter indicated otherwise.

Keep Reading Show less
Sarah Roach

Sarah Roach is a news writer at Protocol (@sarahroach_) and contributes to Source Code. She is a recent graduate of George Washington University, where she studied journalism and mass communication and criminal justice. She previously worked for two years as editor in chief of her school's independent newspaper, The GW Hatchet.

Sponsored Content

Foursquare data story: leveraging location data for site selection

We take a closer look at points of interest and foot traffic patterns to demonstrate how location data can be leveraged to inform better site selecti­on strategies.

Imagine: You’re the leader of a real estate team at a restaurant brand looking to open a new location in Manhattan. You have two options you’re evaluating: one site in SoHo, and another site in the Flatiron neighborhood. Which do you choose?

Keep Reading Show less

Arm’s new CEO is planning the IPO it sought to avoid last year

Arm CEO Rene Haas told Protocol that Arm will be fine as a standalone company, as it focuses on efficient computing and giving customers a more finished product than a basic chip core design.

Rene Haas is taking Arm on a fresh trajectory.

Photo: Arm

The new path for Arm is beginning to come into focus.

Weeks after Nvidia’s $40 bid to acquire Arm from SoftBank collapsed, the appointment of Rene Haas to replace longtime chief executive Simon Segars has set the business on a fresh trajectory. Haas appears determined to shake up the company, with plans to lay off as much as 15% of the staff ahead of plans to take the company public once again by the end of March next year.

Keep Reading Show less
Max A. Cherney

Max A. Cherney is a senior reporter at Protocol covering the semiconductor industry. He has worked for Barron's magazine as a Technology Reporter, and its sister site MarketWatch. He is based in San Francisco.


The great onshoring: Inside the transcontinental chip race

The second annual Trade and Technology Council emphasized the centrality of semiconductor onshoring to U.S.-EU military objectives.

For chip manufacturers, free-flowing subsidies for now might come at the cost of a potential overcapacity problem in the longer term.

Illustration: Christopher T. Fong/Protocol

The prospect of global conflict permeated the room at this year’s Trade and Technology Council, which concluded in France earlier this week. The second annual gathering of U.S. and EU officials yielded a joint statement that mentioned some form of “Russia” or “Ukraine” more frequently than “technology,” “regulation,” “investment,” “security” or “competition.”

The conflict in Ukraine, having already escalated into a U.S. proxy war, seemingly convinced the EU to fall in line with the American tech policy agenda.

Keep Reading Show less
Hirsh Chitkara

Hirsh Chitkara ( @HirshChitkara) is a reporter at Protocol focused on the intersection of politics, technology and society. Before joining Protocol, he helped write a daily newsletter at Insider that covered all things Big Tech. He's based in New York and can be reached at


2- and 3-wheelers dominate oil displacement by EVs

Increasingly widespread EV adoption is starting to displace the use of oil, but there's still a lot of work to do.

More electric mopeds on the road could be an oil demand game-changer.

Photo: Humphrey Muleba/Unsplash

Electric vehicles are starting to make a serious dent in oil use.

Last year, EVs displaced roughly 1.5 million barrels per day, according to a new analysis from BloombergNEF. That is more than double the share EVs displaced in 2015. The majority of the displacement is coming from an unlikely source.

Keep Reading Show less
Lisa Martine Jenkins

Lisa Martine Jenkins is a senior reporter at Protocol covering climate. Lisa previously wrote for Morning Consult, Chemical Watch and the Associated Press. Lisa is currently based in Brooklyn, and is originally from the Bay Area. Find her on Twitter ( @l_m_j_) or reach out via email (

Latest Stories