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Thank you for taking the time! > The market maker (MM) pays 10c to Robinhood for the order, and buys the shares at 10c better @ 150.10. The MM has paid 150.20
by ctvo 5y ago
Thank you for taking the time!
> The market maker (MM) pays 10c to Robinhood for the order, and buys the shares at 10c better @ 150.10. The MM has paid 150.20 effectively (151.10 + 0.10) when the next best buyer in the market was 150.00.
Is this possible due to the technicalities in regulations? Since they're paying a better price, it's OK that they purchase the order from Robinhood and fill it themself? The order didn't hit the "open market" or whatever we'd consider it. It was filled before then, but the best price on the open market was less than what was filled for, regulators are happy.
Very interesting that the money is from retail customers selling at bid, and makes sense.
If you'd like to share -- what's front running in this scenario and how would MMs front run this, assuming it's legal.
- qeternity 5y ago> Is this possible due to the technicalities in regulations? Since they're paying a better price, it's OK that they purchase the order from Robinhood and fill it themself? The order didn't hit the "open market" or whatever we'd consider it. It was filled before then, but the best price on the open market was less than what was filled for, regulators are happy. Sort of. It’s because the MM know that it’s retail order flow. Let’s say we forced all the volume to a lit exchange. The MM might not be willing to pay 10c (the fact that they don’t proves this) because when a fund comes in to sell, it won’t be just 100 shares. It will be 1mm shares, and so MM don’t want to quote sharp prices and then get run over with a huge order. People think it’s MM ripping off retail. It’s not. It’s MM giving better prices to retail and ripping off professional traders.