The neobroker Trade Republic does not assume that EU regulation will destroy the basis of its business model. “The current draft of the EU Commission only marks the beginning of the legislative process,” said Trade Republic boss Christian Hecker of the SZ. It will take until the middle of next year for it to be passed by the European Parliament. He has received many signals from the political side that the current draft is not the last word.
Trade Republic is particularly successful with young people. You can use it to order stocks, ETFs and other securities cheaply using your smartphone. The neobroker was only launched in 2019, and it now has more than a million customers. Its popularity is mainly due to its low cost. A flat rate of one euro is due for a stock order, while it is often more than ten euros for established banks.
This is possible, on the one hand, because Trade Republic does not handle trading via the Xetra system of the German stock exchange, but via the cheaper provider Lang & Schwarz on the Hamburg stock exchange; on the other hand, reimbursements flow between the broker and the company that organizes the trade, the so-called market maker. The market maker pays the broker a fee for arranging the order for him. This system will Payment for order flow called.
The EU Commission wants to ban this practice according to its draft law. It aims to improve the transparency of the financial markets. If the law were to come out like this, it would be a setback for Trade Republic. “The current bill could lead to higher fees and customers to trade at worse margins,” says co-founder Hecker. The big exchanges would make more money while the customer pays on it. The main impetus for the establishment of Trade Republic was to make customers a particularly favorable offer. Payment for Order Flow is not an invention of Trade Republic, the practice has been around for decades – only that other providers do not pass the income on to customers. Hecker is convinced that his company will continue to be the best offer on the market even if payment for order flow were banned – which he does not believe in. He has received signals from politicians that they appreciate the pioneering role of providers like Trade Republic. “We have made saving in stocks and ETFs affordable for middle-class society, which is important in view of the shortage in provision in old age,” says Hecker. A ban would thwart this development.