Dennis Kelleher's testimony is an eye-opening journey on how Robinhood and Citadel exist to fuck you
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Listen, I know reading is hard but you owe it to yourself to read his written statement that was given to the congressional finance oversight committee today.

[Here is the link](https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-bio-kelleherd-20210317.pdf)

While most people summit a 2-3 page written statement to congress, Dennis shows up with his BDE and drops this 45 page glorious takedown of Robinhood and Citadel. If you are confused about the Robinhood DD that got posted today and the mechanics of how it works, read it.

I have quoted some key parts:

On Profit for Order Flow:

> In 2020, Robinhood reportedly received $687 million dollars in so-called "rebates" for essentially selling its customer orders to seven high frequency trading firms ("HFTs") that serve as its executing broker-dealers (i.e., the HFTs that execute or facilitate execution of Robinhood's customer orders). These "rebates" or kickbacks, called "paymentfor order flow" ("PFOF"), are used by nearly all of the supposedly "commission-free" retail broker-dealers (e.g., Robinhood, E-Trade, Schwab/TD Ameritrade) who receive a significant volume of securities orders from Main Street investors.

> In fact, PFOF entrenches approximately seven dominant HFTs that now "internalize" (i.e., execute trades against their own securities inventory and incoming orders) the vast majority, if not almost all, of the retail order flow in the United States. Citadel Securities alone advertises that it trades approximately 26% of U.S. equities volume across 8,900 U.S.-listed equities, executes approximately 47% of all U.S.-listed retail volume, and acts as a specialist or market-maker with respect to 99% of traded volume in 3,000 U.S.-listed options names.25The two largest HFTs involved in PFOF across the markets, Citadel Securities and Virtu Financial, together account for more of the U.S. equities trading market share than the New York Stock Exchange.

> At any given time, approximately 47 percent of all U.S. stock market volume is traded away from transparent, regulated exchanges (see Figure 3 for figures during the first half of 2020) due to a combination of internalization, trading on alternative trading systems (dark pools), and trading through single-dealer platforms. In certain securities, and at certain times, more than 50 percent of the trading in U.S. equities markets likely occurs in dark markets. Retail trading volume through Robinhood and similar broker-dealers (like E-Trade and Schwab/TD Ameritrade) is internalized by HFTs at far higher rates than this, which means that retail trading representing as much as one-third of total U.S. equities trading volume (depending on the measurement period and securities in question30) essentially never interacts with orders on the securities exchanges.
>
> Retail trading volume through Robinhood and similar broker-dealers (like E-Trade and Schwab/TD Ameritrade) is internalized by HFTs at far higher rates than this, which means that retail trading representing as much as one-third of total U.S. equities trading volume (depending on the measurement period and securities in question) essentially never interacts with orders on the securities exchanges.
>
> Obviously, one implication of these facts is that any significant disruption to an HFT like Citadel Securities or Virtu Financial would shake markets and could quite possibly cause significant, widespread dislocations in many securities, if not ignite a catastrophe.
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> All of this opaque, needless created complexity enables systematic, secret wealth extraction from the buy side by the sell side. Indeed, this is little more than a destructive multi-billion dollar "hidden tax" (likely significantly exceeding $10 billion) on the execution of retail customer orders.

On Best Bids and Offers:

> Despite its name, the NBBO frequently does not even represent the "best" bid or offer available on the public U.S. stock exchanges The lack of odd-lot and other data in the NBBO (National Best Bid Offer) also enables the HFTs and others to inflate and protect their profits by purchasing proprietary data from the exchanges and taking advantage of various forms of privileged access to the securities markets, both of which enable the seven dominant HFT firms to simultaneously, profitably, and regularly trade inside the NBBO in a manner that few others can. PFOF is profitable only because the HFTs are able to share some of the billions of dollars they pocket by claiming price improvement against the NBBO, while trading at prices "inside" of the NBBO and engaging in other inefficient and under-the-radar wealth extraction activities that are beyond the scope of my current testimony.

[Dark Pools and Retail Trading](https://imgur.com/xXXGRH2)

On execution of orders:

> Perhaps not surprisingly, Robinhood is one of the relatively few broker-dealers that have been found by the SEC and FINRA to have engaged in order-routing practices so egregious that they failed a best-execution standard that is almost by design exceedingly difficult to fail.45 Even then, the SEC (1) only charged Robinhood with disclosure violations and not substantive fraud violations, which appear to have been amply supported based on the facts in the SEC's order; and (2) did not charge any individuals, even though facts concerning the conduct of individuals at Robinhood (as identified in the order) would appear to merit consideration of individual charges.

[How Robinhood's Execution Works](https://imgur.com/x3ip0ma)

On Robinhood:

> If Robinhood were interested in democratizing access to the financial markets and creating a level playing field for everyday investors, it would have, at a minimum, explained these irrefutable facts plainly and clearly to its customers, disclosed the true costs of preferential order routing, and shared the derived revenues with its "customer" base. Instead, it has for years used its customers as a product to be sold to its real economic customers---the executing dealers/HFTs that make billions of dollars off of Robinhood's users and who not only share that money with Robinhood but are incentivized to maximize the amount extracted. Presumably, that is why Robinhood not only failed to disclose its practices but apparently engaged in a knowing illegal conspiracy to mislead investors about PFOF, as detailed in the SEC order fining Robinhood $65 million just last December.
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> After drawing on six bank credit lines reportedly totaling as much as $600 million, Robinhood reportedly sought an emergency infusion of more than $3.4 billion over four days to prevent further disruptions to trading on the platform.57 In more extreme (but plausible) market conditions, Robinhood may have had more difficulty drawing on its credit lines and/or raising such a significant amount of capital on an emergency basis, particularly at a time when other large market participants would be in dire need of substantial additional capital. If Robinhood defaulted on its margin calls, it could have been forced to more broadly halt trading and/or unexpectedly close out the most volatile positions across as many as 13 million retail accounts, thereby exposing every holder of securities affected by these actions to potentially dramatic changes in prices, liquidity, and order flow.

On Short Interest and Market Manipulation:

> Some trading in GameStop and other so-called "Reddit Rebellion" equities was apparently motivated by objections to the short selling activities of institutional traders. There is some transparency with respect to short interests acquired through traditional short selling activities. Market participants frequently rely on put-call, short-interest, and days-to-cover ratios, for example, to gauge market sentiment on valuations, and some of these short-interest measures are informed by bi-monthly reporting by broker-dealers. However, these metrics do not adequately capture the levels of short interest across financial firms or in a sufficiently timely manner. Moreover, these measures do not include the short interests acquired through derivatives that provide leveraged exposures to securities, or baskets of securities, without any purchase or sale of the underlying securities.
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> Market participants at the center of these events have for years taken advantage of the complexity they created, the resulting market fragmentation, their order routing schemes, the questionable execution and trading practices, the lack of transparency, and the many uses of seen and unseen leverage.
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> As the predatory, and in some cases illegal, practices just discussed illustrate, much of the current market structure has been intentionally created to be as non-transparent and complex as possible to enable and conceal as much wealth extraction as possible.
