- Trading app Public stopped using payment for order flow and now says it's better for it.
- Some retail traders have petitioned for a ban on the practice, and regulators are considering it.
- In several data points, Public showed how it's beating competitors on price execution.
Trading app Public says it's delivering better price execution for its customers — without building its business model around payment for order flow.
The app, which has more than 1 million users, published data showing its trade executions are better than its competitors like Robinhood, which makes money by routing customer trades through market makers like Citadel Securities, which pays the trading app for that flow.
Once an obscure market structure issue, the practice came into the spotlight during the GameStop saga that sparked this year's meme stock craze. Since then, more than 50,000 retail traders have even signed a petition to push for a ban, and Securities and Exchange Commission chief Gary Gensler has said such a move is on the table.
Barring the practice would have an impact on brokerages, which see a yearly $4 billion in PFOF flows, Axios reported, citing Bloomberg's head of market structure research.
In February, Public ended its use of payment for order flow and now uses smart order routing software which routes orders to the best price after scanning dozens of exchanges and trading systems.
Since getting rid of payment for order flow, Public said in a blog post that, "The data available to us strongly suggests that Public delivers better execution quality on average to customers than our peer firms that accept PFOF from market makers."
In one data point, called the "EFQ," short for the effective spread over quoted spread, Public beats out Robinhood, which has about 18.9 million monthly active users. The measurement shows how much price improvement an order received, Public wrote, and the lower percentage correlated to better execution. Public's EFQ is 33%, while Robinhood's is 45%.
"EFQ is the most comprehensive and important metric for understanding the quality of prices delivered," Public said in its post.
Public beat Robinhood in another metric, too, like at-or-better, which shows the percent of shares executed at or better than the National Best Bid and Offer (NBBO) at the time of order.
At least one metric, called net price improvement — filling an order at better than the NBBO — swung in Robinhood's favor. Robinhood saves customers an average of $1.72 per trade, while Public saves $1.18. Robinhood declined to comment for the story.