I think what you are trying to do is take an argument that has shades of gray and turn it into a black/white argument. This is a very CS thing to do, but I'm not sure it's really a very good way to look at this business situation.
From what little I've read here it seems that there is a continuum of different business strategies in which brokerages use their customer base and clout to negotiate PFOF deals that simultaneously (1) produce revenue for the brokerage, and (2) produce better prices for their customers. Since exchanges have finite financial resources, there is some tension between these two goals, which means that at some point brokerages are essentially trading their own interests against their customers' interests. This creates a power and information imbalance that can probably harm customers if the exchange behaves in ways that maximize (1) at the cost of (2). (RH is alleged to have pushed this balance much farther than common industry practice.) But that does not mean all PFOF deals are definitionally bad.
The question in this case is not "is PFOF always bad", but rather "is there some point at which brokerage-revenue-maximizing PFOF negotiations actually harm customers by overcharging them compared to a more transparent system." The answer to that question is simple: almost certainly there does exist such a point and when a brokerage reaches that point, customers probably won't be able to tell that the point has been reached. Moreover, brokerages with no commissions seem clearly incentivized to optimize towards or beyond that point. Maybe you could argue that RH hasn't reached that point in this specific case, but this does not seem to be your argument.
The question then is: what do you do about it? Should all PFOF be disallowed? You seem to be making a compelling argument that this is not a good solution. Should there be some kind of standard for how much that brokerage/customer balance should be allowed to stretch? Plenty of business practices are regulated along lines like this, where the regulation doesn't outright ban the practice but instead provides some guidelines and standard practices to prevent abuse of weaker parties like customers.
I'm not here to give an answer: I'm just pointing out that eventually if you allow brokerages to keep optimizing for revenue, customers will be harmed. Maybe they already have. At that point it's up to the regulators to do something, because that's their job.
When you suggest that I'm collapsing this down to a binary issue, is that based on information you have about market structure? Have you done a bunch of research on this? Can you be more specific about it? Or is it just a thing you feel happens on message board threads?
As I've said: I'm a little bit at a loss as to what your problem with Robinhood even is. They don't charge trading commissions. But they do take an 80/20 share of price improvement payments where other brokerages take 20/80. We can all agree that it's not OK to lie about doing that. But now we know†, and they've been fined. What next? Should they take 20/80? Why not 15/85? Is the right split just what the majority of the other discount brokerages take?
Again: I loathe Robinhood. They are a force for evil. But when people come up with weird diagnoses for why they're bad, it leads them to make silly decisions about other discount brokerages, none of whom (a) seriously prioritize their customers (perhaps excepting Vanguard), or (b) operate the way people on message boards believe brokerages operate.
† You might be able to argue that knowing the right Google query here, and also giving a shit††, would have enabled you to know this before the SEC announcement, because Robinhood's most important venue is also Schwab's, and you can just compare the per-share rebate they're getting. My confidence level here is not super high.
†† (my subtext here is that people don't really give a shit)
My point, which I think I made clearly in the very first post of this thread, is that highly opaque pricing structures are bad for consumers. You justify this with “consumers don’t give a shit”. I think consumers clearly do give a shit about trading costs, and my evidence for this is that zero-fee brokerages like RH are taking over the industry.
What consumers don’t have the time or resources to do is try to reverse-engineer the costs that they are actually paying when using RH’s platform. I’m not even sure they possibly could do so given the information asymmetry between firm and customer, and your “maybe there’s a Google search but I have low confidence” counterargument isn’t moving me. The SEC report shows that for some customers RH’s costs were inordinately high compared even to competitors that charged fees and had PFOF revenue, but others weren’t. How do I, as a customer, actually figure out how much a trade is going to cost me at different brokerages? Under the current regime (even without RH actively lying about PFOF revenue) it seems like customers cannot figure this out in any reasonable way.
The question then is: what should regulators do about it? Your position seems to be some kind of binary “we must either disallow PFOF entirely or allow any PFOF arrangement without reservation as long as brokerages disclose that PFOF revenue exists somewhere in their TOS.” My point is that different PFOF arrangements have very different impact on customer prices. For example, it's easy to envision a large class of PFOF arrangements that are undeniably harmful to customers, and yes, absolutely regulators should find some reasonable grounds to police those. Because at the highest level, a situation in which those deals are allowed is going to be terrible for consumers. With brokerages hunting for new revenue sources, those situations are going to become increasingly the norm.
ETA: Even ignoring the “bury it somewhere in the TOS” problem, it’s not obvious to me that simply disclosing “we have PFOF arrangements” is sufficient. It seems problematic that a single disclosure should apply equally to everyone from Vanguard to Schwab to RH (or even some hypothetical future scam brokerage that massively overcharges its customers via PFOF) when all of these companies have wildly different arrangements that affect customer trading prices differently. The nature of the arrangements matter too, and at minimum customers deserve sufficient disclosure of the arrangements that they can make determinations about which company is going to cost more to trade with. I hope we can agree that current disclosures and your random low-confidence Google searches do not achieve this goal.
You understand that all these brokerages are in fact required to disclose many of these details already, and that the SEC pursued Robinhood not because of the details of its PFOF arrangements but because of what it's marketing materials said, right? In what way are the current disclosures in inadequate? I'm prepared to hear that they are, but maybe less sanguine about a thread about how the big problem is you didn't know about them.
From what little I've read here it seems that there is a continuum of different business strategies in which brokerages use their customer base and clout to negotiate PFOF deals that simultaneously (1) produce revenue for the brokerage, and (2) produce better prices for their customers. Since exchanges have finite financial resources, there is some tension between these two goals, which means that at some point brokerages are essentially trading their own interests against their customers' interests. This creates a power and information imbalance that can probably harm customers if the exchange behaves in ways that maximize (1) at the cost of (2). (RH is alleged to have pushed this balance much farther than common industry practice.) But that does not mean all PFOF deals are definitionally bad.
The question in this case is not "is PFOF always bad", but rather "is there some point at which brokerage-revenue-maximizing PFOF negotiations actually harm customers by overcharging them compared to a more transparent system." The answer to that question is simple: almost certainly there does exist such a point and when a brokerage reaches that point, customers probably won't be able to tell that the point has been reached. Moreover, brokerages with no commissions seem clearly incentivized to optimize towards or beyond that point. Maybe you could argue that RH hasn't reached that point in this specific case, but this does not seem to be your argument.
The question then is: what do you do about it? Should all PFOF be disallowed? You seem to be making a compelling argument that this is not a good solution. Should there be some kind of standard for how much that brokerage/customer balance should be allowed to stretch? Plenty of business practices are regulated along lines like this, where the regulation doesn't outright ban the practice but instead provides some guidelines and standard practices to prevent abuse of weaker parties like customers.
I'm not here to give an answer: I'm just pointing out that eventually if you allow brokerages to keep optimizing for revenue, customers will be harmed. Maybe they already have. At that point it's up to the regulators to do something, because that's their job.