The Economics of the Deal
In 2020, Robinhood received approximately $1.5 billion in PFOF payments — primarily from Citadel Securities. These payments represented Citadel's price for exclusive or near-exclusive access to Robinhood's retail order flow. Citadel paid $1.5 billion because it expected to extract significantly more than that from executing Robinhood users' trades. The spread between what Citadel paid and what it earned from Robinhood's order flow represents value extracted from Robinhood's customers.
The Regulatory Response
In 2020, the SEC charged Robinhood with failing to disclose its PFOF arrangements and achieving inferior execution for customers. Robinhood paid $65 million to settle — less than one month's worth of PFOF revenue at the time. The settlement required improved disclosure but did not end the practice.
What Has Changed Since 2021
Following the GameStop controversy and Congressional scrutiny, Robinhood has improved its PFOF disclosures and added execution quality metrics to its app. However, the fundamental structure remains unchanged: Citadel Securities continues to receive the majority of Robinhood's retail order flow through PFOF arrangements.