Not sure what the founder of barstool sports actual experience is in this area. Or whoever else. Also, it's very easy to describe order flow in a disingenuous way (citadel sees the order before the market) that's technically true and will make people think it's front running.
Did the experts say front running? Or did they say paid for orders and somebody else said front running?
And here's a Vice article about it. They don't mention front running, but the outcome sounds the same, in that the customers are not paying the best price for the stock, since the middle man pockets some.
The interesting thing about retail order flow is that market makers can offer it tighter spreads (I.e. better prices) because they know on average there is no edge in there (i.e. some huge fund with non-public knowledge).
That’s why they will literally pay to get order flow they know to be vetted as a bunch of retail investors.
It’s like a casino paying for a stream of blackjack customers that excludes card counters. It’s worth money to them and it’s even worth it for the customers because the casino can offer more payout (e.g. 3:2 instead of 6:5) because there is a smaller chance of getting steamrolled.
>Market makers stand ready to buy or sell stock from or to customers; they try to buy for a bit less than they sell at, and pocket the spread. If you go out into the market and say “hey I’ll buy anyone’s stock for $10,” and a really smart hedge fund comes to you and sells you stock for $10, that’s probably bad. You’ve probably made a mistake. The hedge fund is selling you the stock for $10 because it knows it’s worth $8. This is called “adverse selection.”
>More subtly, if a really big mutual fund comes to you and sells you stock for $10, that also may be bad. The mutual fund is probably selling lots of stock, because it’s so big; it sells you a little, then sells a little more, then a little more, until it pushes the price down to $8. The mutual fund isn’t necessarily smart, but by virtue of being big and doing big trades, it moves the price; if you are on the other side of its trades, you get run over. This is also a kind of adverse selection: You buy at $10 and are stuck selling at $8. Part of the spread that market makers earn in public markets—the difference between their buying and selling prices—compensates them for adverse selection, the risk of being run over by a counterparty who knows something they don’t.
>Market makers, the textbook theory goes, would much rather trade with retail orders. Retail investors generally don’t know much, so if you buy stock from them you’re probably not making a mistake. And retail orders are generally small and uncorrelated: One investor buys a little, another comes along a moment later and sells a little, it’s all pretty random, and you’re not facing an avalanche of steady sell orders that push the price down. Trading with retail is so nice that market makers—wholesalers—will both give retail orders a tighter spread (pay more to buy their stock, charge less to sell stock to them) and pay their broker for the privilege of doing it.
There were no allegations that they provided a worse price than the NBBO (ie. the price you'd get if there wasn't PFOF), just that out of all the firms offering PFOF, robinhood didn't choose the best one for their customers.
“But the SEC’s order finds that two algorithms used by Citadel Securities did not internalize retail orders at the best price observed nor sought to obtain the best price in the marketplace”
When did the goalposts get moved? Your original argument was citadel/robinhood was "front running trades". That's a more serious accusation than robinhood/citadel not getting the best price.
The upshot of this is that Citadel is selling retail GME at slightly elevated prices for profit. This will certainly contribute to higher GME prices. If Melvin is still short, Citadel is in a predicament. If they want the price as low as possible for Melvin’s sake, they need to actually provide the best price. I thought that was funny.
Did the experts say front running? Or did they say paid for orders and somebody else said front running?