A phrase like “overhaul the equity market structure” should make a lot of people nervous. It will also make some excited, but for Bank of America, it looks for a lot more concern around Charles Schwab (NYSE:SCHW) and Robinhood Markets (NASDAQ:HOOD). With Robinhood down in Friday’s trading—although it’s rallying after-hours—and Schwab up in both regular hours and after-hours, the exact degree of concern may vary.
Bank of America (NYSE:BAC), by way of analyst Craig Siegenthaler, noted that both Robinhood Markets and Charles Schwab weren’t likely to come out ahead in a market revamp. Siegenthaler called the SEC’s plans for modification a “net negative.” Those two weren’t the only ones likely to take hits. Both NASDAQ itself (NASDAQ:NDAQ) and the Intercontinental Exchange (NYSE:ICE) were likely to also suffer. However, those two would suffer somewhat less harm than Robinhood and Schwab would.
More specifically, should the proposals go through, Robinhood would be the biggest loser, taking both a 1% hit to earnings per share and a 2% hit to revenue. Schwab, meanwhile, would take just a 1% earnings per share hit. The SEC is looking to alter client disclosures, order routing, order pricing, and the practice of Payment for Order Flow (PFOF). PFOF lets brokerage operations charge an extremely modest fee—usually only fractions of a cent for each share—to direct orders to certain exchanges.
Analysts are of mixed minds about just how much impact these changes might have. Charles Schwab is currently called a Moderate Buy in analyst consensus, while Robinhood is called a Hold. Schwab’s average share price target gives the stock a 14.42% upside potential. Meanwhile, Robinhood gets a 67.04% upside potential by way of its $13.28 average share price target.
