Now that doesn't seem a lot to you but times the difference (10 cents) by volume and number of Robinhood customers placing orders and it can add up to be a lot.
What is actually being alleged here is that Robinhood did not fulfill their obligation to secure the best price. There is a literal system in the US equities space that says what the best price for a symbol is across the exchanges.
The internalizer can arbitrage this system due to physics & CAP there on but they can also do it in more prosaic ways, by having previous inventory that is priced better or by simply taking the spread between an internal netting (thus internalizing it).
In any case it’s Robinhood who holds the fiduciary duty not the internalizer so if they aren’t getting appropriate execution they need to change their contracts with the internalizers, switch to a different set or send directly to lit exchanges (which destroys their business model & likely gives worse execution than a more fair internalization setup would).
Second, the allegation made by the SEC, for which they most likely have very strong evidence, is that Robinhood didn't fulfill its duty to execute orders at the best price to the tune of some 30 million dollars.
Source: work at a hft market making firm
Is everyone just forgetting the entire purpose of this submission is that Robinhood used pay for order flow to facilitate front running?
>Robinhood failed to seek to obtain the best reasonably available terms when executing customers’
That could mean pretty much anything.
These facts taken together can not be used to "mean pretty much anything". These facts, along with the additional fact that the SEC is charging Robinhood of engaging in illegal activity, strongly suggest illegal activity involving pay for order flow that resulted in worse price execution to the customer.
If you think that means "pretty much anything" then we can simply agree to disagree on this matter.
This sentence doesn't make much sense given how PFOF works. It would make sense if it were flipped around and said "not only worse than competing brokers, but worse than what is available on the market" because brokers typically provide retail traders better than what is available on the market (assuming: public exchanges = market).
I agree with GP that the press release suggests that Robinhood was not giving worse prices than NBBO, but was instead giving prices better than NBBO (like every broker), but intentionally not _as good_ prices as other brokers, in exchange for greater PFOF.
I am not fundamentally against PFOF, but the "honesty" required on the part of the broker in situations like this has always troubled me, and it's interesting to see it rear its head. I think an ideal market structure might keep PFOF, but in a more public way, such that payments were more transparent/competitive in real time, and not something arbitrarily negotiated between brokers and wholesalers.
Front running is an informal term that is used in many different domains to refer to when a principal acting on behalf of a client uses privately obtained information gained from that client to benefit at the client's expense. The term is used in finance, it's used in real estate dealings, heck there was even a scandal involving domain name registrars front running their clients:
http://www.circleid.com/posts/81082_network_solutions_front_...
The more formal and academic term is the principle agent problem:
https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
There is literally a FINRA rule with with front running in the name (5270). It doesn't have to be a technical term for it to still have meaning (outside of Michael Lewis's intent to change its meaning). It specifically refers to a broker trading based on the knowledge of their client's intent to trade. The examples you give actually are instances of the true definition. It doesn't really happen in equities because of how automated and smooth that market is, but it certainly happens in other areas of finance.
The principal agent problem is much more general.
- You trying to buy 100 shares for $100 each - Someone is selling 100 shares for $98 each - RH supposed to fill order at best price ($98) - RH didn't do that.