[pdovy]

The payment for order flow piece is a little confusing as presented in the press release, but the actual SEC order makes this a little clearer: https://www.sec.gov/litigation/admin/2020/33-10906.pdf

Basically there are two ways broker-dealers that want to do business with Robinhood or similar firms can provide incentives:

1. Pay the flow provider (i.e., Robinhood) some amount per order/share

2. Provide price improvement over the prevailing market price to the end customer (which the provider can then use to market themselves as providing good execution).

Ultimately both of these are coming out of the broker-dealers bottom line, so the unit economics have to work - (1) and (2) have to leave a positive profit margin on average. Typically a firm like RH would be monitoring execution quality and negotiating price improvement requirements with the broker-dealer. This order finds that RH failed to do that, and likely as a result of their demand for high payment for the order flow, (2) was below their peers while they were stating otherwise in their marketing materials.