Discuss whether the widespread adoption by retail brokerages such as Robinhood of a payment-for-order-flow model, along with the proliferation of dark pools, represents a fundamental restructuring of financial markets relative to the commission-based brokering model involving execution of orders through public exchanges.

Social studies of finance

Case Study

The case study comprises the testimony and supporting documentation from the US House of Representatives Committee on Financial Services dated Thursday, February 18, 2021.

House of Representatives (2021) House Financial Services Committee. Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide. Hearing, 18th February. Washington: Government Printing Office. Online. Available at:

Assignment Questions

Using the above case study, along with what you find out from your further reading and research on the topic, and focusing on the literature discussed in the module, answer BOTH questions below.

Answer each question separately as a stand-alone mini-essay of not more than 1500 words, but use a common reference list for both and make sure your individual answers are within +/- 10% of the overall word-count of 3000 words.

1. Discuss how the conver gence of Fintech,social media and traditional financial markets has shifted the dynamics of retail investing, utilising – where relevant – concepts discussed in the module including (but not limited to) key objects of exchange, agents/actors, ties and structures of relations between agents, the assembling of trades and the use of distributed cognition.

[50 marks]

2. Within the first US congressional hearing relating to the Gamestop controversy, Robinhood’s business model was critiqued, while Warren Davidson, the Representative for Ohio, referenced the DTCC’s Project Ion, which explores the use of blockchain technology to improve the efficiency of payment and settlement functions within financial markets.

Discuss whether the widespread adoption by retail brokerages such as Robinhood of a payment-for-order-flow model, along with the proliferation of dark pools, represents a fundamental restructuring of financial markets relative to the commission-based brokering model involving execution of orders through public exchanges.

With reference to the Gamestop controversy, discuss whether a blockchain- based payment and settlement system (such as Project Ion or Project Whitney) might affect current market practices.

[50 marks]
2

Suggested readings

The following are readings that could be of help in preparing your assignment: Battalio, R. and Loughran, T. (2008) Does Payment For Order Flow To Your Broker

Help Or Hurt You? Journal of Business Ethics, 80, pp.37-44.

Ben-Abdallah, R. and Breton, M. (2015) To Squeeze or Not to Squeeze? That Is No

Longer the Question. Journal of Futures Markets, 36(7), pp.647-670.

Chiu, J. and Koeppl, T. (2019) Blockchain-Based Settlement for Asset Trading. The

Review of Financial Studies, 32(5), pp.1716-1753.

Culp, C. and Heaton, J. (2008) The Economics of Naked Shorting, Regulation 31, 46-

51.

DTCC (2020a) Project Ion Case Study. 25760-PS052020. New York: The Depository Trust and Clearing Corporation. Online. Available at:

services/user-documentation/Project-ION-Paper-2020.pdf

DTCC (2020b) Project Whitney Case Study. 25733-TC042920. New York: The Depository Trust and Clearing Corporation. Online. Available at:

services/user-documentation/Project-Whitney-Paper.pdf

FCA (2019) Payment for Order Flow (PFOF). Pub ref: 005980. London: Financial Conduct Authority. Online. Available at: order-flow-pfof.pdf

Pagano, M., Sedunov, J. and Velthuis, R. (2021) How did retail investors respond to the COVID-19 pandemic? The effect of Robinhood brokerage customers on market quality. Finance Research Letters, In Press.

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Reference no: EM132069492

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