Thank you so much for being here. I do want to start with this question surrounding the business model of brokerage firms. Kate mentioned this idea of payment for order flow, which has enabled brokerage firms like robinhood and others to allow for commission free trading. It essentially require, or has a certain market makers, paying them for their orders, and then those market makers are the ones who execute the trades off of exchanges. Do you think that this whole attention to pfoff, as it’s colloquially known, is going to create some sort of reckoning for a business model that you know few people really paid much attention to before this, or do you think this is something that’s actually providing a benefit To investors since they’re able to trade effectively for free, so first and foremost, thanks for having me back on um when, when i you know, look at payment for order flow and the way that that was structured. I think there there are definitely a lot of benefits that come through. You know, through from it to the investor, particularly the retail investor. In terms of you know, speed of execution, the you know the amount that they get on price improvement, the manner in which their trades are matched right, they’re getting some of the best execution that has ever been delivered in the space. The speed with which trades are now executed, you press a button, it’s done it’s in your account and, in all likelihood, you’ve gotten some semblance of price improvement.
So but i think there’s there’s a broader question in terms of the individuals who are testifying today, who’s going to be you know there as witnesses for the the hearing and sort of where chairwoman waters is is taking this. There are a number of of different pieces right. These are some very weighty topics in each of their own right, so payment for order flow goes to the entirety of market structure. You can’t just flip a switch turn off payment for order flow without damaging a whole bunch of other pieces within a system that works very well right now, so you know i i honestly have have a lot to say about payment forwarder flow, because you have to Run it right right, it is permitted by the sec and it’s something that most of, if not all, of the you know, sort of retail brokerages have participated in at one point or another. Then you have to do it right. You have to protect your customer. The thing that most people don’t get or don’t understand when they start talking about all these payments and other pieces. When you do the calculations correctly and you weigh those market centers that you’re going to route your trades to right, one against the other you’re not supposed to look at price being paid right, you need to look at execution quality alone, and you only look at the Pricing on the other side of it or the mill rate that might get paid if there’s a tie or they’re otherwise sort of an even playing field.
So as long as you’re doing it right, there shouldn’t be any you know, disadvantageous. You know movement toward a retail investor yeah, i think in uh tennis testimony. He said that their customers have received about a one billion dollar price benefit from using this method uh. But you know i’m curious without necessarily turning that spigot off turning uh payment for order flow off entirely. Are there certain improvements that you think can be made that help maybe address some of the conflicts of interest questions or address some of the transparency questions? Uh that lawmakers and others have raised about this method so again on payment for flow. You know, if you’re doing it right in terms of order routing. There are reports that each broker is responsible for publishing. In terms of you know what they did with with order flow and order routing – and those are – you know pretty well, you know out there and there’s more. I think more push for transparency, which is always a good thing in this industry, and i think that you know could really help the retail investor, but i think the the focus here just seems to be. You know there’s some kind of a massive conflict that these brokerages are really going out and making money if you’re doing it right and you’re. Following the letter of the law that’s there, it should be a very easy view to see which market center is providing you the best possible execution quality with the technology that they have, and they can all crank that you know that speed of execution and where they Execute their trades, they can crank that up, based on the demands of the brokerage when you pick one against the other right, it’s, a highly competitive space carl, you know congressional hearings often descend into theater uh, particularly on the house side, but i don’t know the tone That we’re hearing has been pretty a very hardy policy discussion.
I wonder if you have higher hopes for today’s hearing relative to some of the ones in the past, so so without without um being negative, because i sort of try to be positive all the time i don’t think i’m out of the hearing today right, i don’t Think you’re going to see a lot coming out of this congressional hearing. I think you’re going to see a lot of mudslinging, a lot of grandstanding i’m hopeful that that the witnesses all stick to their. You know their prepared remarks and their areas of expertise and they don’t go off a stray or a field because of some of the questions that will be thrown at them. But i do think there are real issues here, carl that that need to be addressed and each one of them should be broken out separately. And i am hopeful that you know the secretary yellen if gary. If and when gary gensler is confirmed – and you start to get some pragmatic individuals with real experience around the table, who can dissect each one of these issues and start to make some changes that will make sense, you know the worst possible thing will be knee. Jerk reactions coming out of today’s hearings, yeah carlos david yeah that’s, always a concern i’m curious, though, if there was one question that you could ask of one person uh joining the hearing today is there: is there one and who would it be too, and what would It be so so my my question on on this whole piece, having sort of been at the helm of one of these firms in the past, the decision to stop trading in an individual name is one of the harshest things that you can do, and i don’t Mean that, in terms of the wrong thing i just mean you need to have facts around you.
That say we need to stop this right now right that question i would i would want to see answered. Why was that decision made? What were the facts that were surrounding it and and what you know, what actually happened be transparent about it? Let us all know, and if it was something that you did, because it was going to protect the firm, come out and say it shepard smith.