Finance

The clearing firm powering SoFi, Webull and other fintechs has been quietly building a marketplace for matching customer orders.
The “auction” process, as the CEO of Apex Clearing describes it, would let stock exchanges compete directly with market makers like Citadel Securities and Virtu.
“It creates more competition, which will translate into better prices,” Bill Capuzzi, CEO of Apex, told CNBC. “The big winner is the retail investor.”‘

Omar Marques | LightRocket | Getty Images

The brokerage industry is exploring alternatives to payment for order flow as SEC chair Gary Gensler takes aim at the practice.
One idea is coming from Apex Clearing, CNBC has learned. The clearing firm handles trades for SoFi, Webull and other fintechs and has been quietly building a marketplace for matching customer orders. The “auction” process, as the Apex CEO describes it, could let stock exchanges compete directly with market makers like Citadel Securities and Virtu.

“It creates more competition, which will translate into better prices,” Bill Capuzzi, CEO of Apex, told CNBC. “The big winner is the retail investor.”‘
Earlier this week, SEC chairman Gary Gensler proposed changing rules that govern how Wall Street handles retail trades. The top securities regulator said his plan would, in part, require firms to compete directly to execute trades from retail investors. Gensler is also looking for more disclosures around fees and data. The SEC chair has been critical of potential conflicts of interest and complained of power being concentrated among select market makers.
“I asked staff to take a holistic, cross-market view of how we could update our rules and drive greater efficiencies in our equity markets, particularly for retail investors,” Gensler said at a Piper Sandler fintech conference on Wednesday.
Payment for order flow, or PFOF, refers to payments brokerages receive for directing customer trades to a market maker, such as Citadel Securities or Virtu. While it’s often a fraction of a penny, the arrangement brings in the bulk of revenue for Robinhood and other brokerages, and has allowed them to offer commission-free trading.
PFOF is widely practiced by the brokerage industry but came under fire during the Gamestop saga. Gensler and the SEC questioned potential conflicts of interest and whether retail traders were getting the best price. Companies are already required to give customers the best price, known as “best execution.”

While the marketplace — technically called an alternative trading system — is “built and ready to go,” Apex’s Capuzzi said, it has yet to launch and could require SEC approval. But if approved, an auction like this may pre-emptively solve some of the agency’s complaints about how the securities industry operates behind the scenes.
Rich Repetto, a managing director and senior research analyst at Piper Sandler, said there could be more examples of firms trying to test ideas ahead of any formal SEC moves. That may even reduce the need for any changes to the current rules.
“Now that the outline was presented by Gensler, there could be innovation in front of it that could get him to where he wants to be without any formal rulemaking,” Repetto told CNBC.
While still a variation of payment for order flow, a marketplace like the one Apex is building may shrink the profits for wholesale market makers, Repetto said.
Another alternative to Gensler’s proposals could be the industry moving back to “internalization,” or brokers filling customer orders from a firm’s own inventory, according to Devin Ryan of JMP Securities. The practice is only an option for larger self-clearing brokerages with significant order flow. Fidelity does this, for example. Charles Schwab and E*Trade used to.
“This scenario could even be more economic for the largest players but would likely lead to more fragmentation in liquidity and more questions on execution quality,” Ryan said.
Robinhood’s chief legal officer Dan Gallagher, a former SEC commissioner, argued that as things stand retail traders have never had it so good. Gallagher pointed to fast execution, zero commissions and zero account minimums as reasons to keep the status quo.
“It is a really good climate for retail. To go in and muck with it right now, to me, is a little worrisome,” Gallagher said at the same industry conference Wednesday.
For traders though, an auction set-up with more competition could result in incrementally better prices. While it might look “miniscule,” around 1 cent for some trades, it eventually adds up, Capuzzi argued.
“If you do this over and over again, and you’re giving a 10% better execution, that goes back to the retail trader — it’s better execution on both the buy and sell side, so more money in their pockets,” Capuzzi said. “This can make a material impact and change to the positive for the market structure.”
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Check out the companies making headlines before the bell:
DocuSign (DOCU) – The electronic-signature technology company’s stock plunged 26.1% in the premarket after its quarterly profit and revenue fell short of Wall Street forecasts. DocuSign had previously warned that a return to post-Covid working conditions could cut into its business.

Vail Resorts (MTN) – Vail Resorts rallied 6.7% in premarket trading after the resort operator posted better-than-expected quarterly results. Vail benefited from an easing of Covid-related restrictions and noted successful efforts to attract visitors outside of its peak skiing season.
Stitch Fix (SFIX) – Stitch Fix shares slumped 15.4% in premarket action after the online clothing styler posted a wider than expected quarterly loss and gave weaker than expected revenue guidance. Stitch Fix also said it would cut 330 jobs, about 4% of its total workforce.
Rent The Runway (RENT) – The fashion rental company posted a smaller-than-expected quarterly loss while its revenue came in above Wall Street forecasts. Sales doubled from a year earlier and Rent The Runway also issued an upbeat current-quarter revenue forecast. Shares jumped 8.2% in the premarket.
Illumina (ILMN) – The maker of gene-based therapies saw its shares decline 4.2% in the premarket after announcing the departure of Chief Financial Officer Sam Samad, who is taking the CFO role at Quest Diagnostics (DGX).
Netflix (NFLX) – Netflix slid 4.7% in premarket trading after Goldman Sachs downgraded the stock to “sell” from “neutral” and cut the price target to $186 per share from $265. Goldman said it was focusing on a number of factors, including an increased focus on profitability and lower investor tolerance for long-term investments as Netflix and other web-based businesses mature. In the same report, Goldman also cut to “sell” from “neutral” video game company Roblox (RBLX), down 4.7% in the premarket, and eBay (EBAY), down 3.6%.

Angi (ANGI) – The home services company reported a 24% jump in May revenue, compared with a year earlier, even as service requests fell 7%. Separately, the company announced the departure of Chief Financial Officer Jeff Pederson.
CME Group (CME) – The exchange operator’s stock gained 2.3% in the premarket after Atlantic Equities upgraded it to “overweight” from “neutral.” The firm said CME has the strongest fundamental backdrop among U.S.-based exchanges and that a recent drop in the stock provides an attractive entry point.
Kontoor Brands (KTB) – Goldman Sachs downgraded the stock to “neutral” from “buy,” noting that increasing cost pressures have been weighing on results and earnings growth for the parent of the Lee and Wrangler apparel brands. Kontoor Brands fell 1% in the premarket.

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The iPhone maker announced plans to launch Apple Pay Later, which would allow users to pay for things over monthly installments without interest.
That puts “buy now, pay later” players like PayPal, Affirm and Klarna in an awkward spot.
A triple whammy of rising inflation, higher interest rates and slowing economic growth have put the industry’s future in doubt.

Apple Pay Later will let users pay for things over four equal installments.
Jakub Porzycki | Nurphoto | Getty Images

AMSTERDAM — Apple’s move into the crowded “buy now, pay later” space has raised the stakes for the fintech companies that pioneered the trend.
The iPhone maker announced plans to launch its own “pay later” loans on Monday, expanding an array of financial services products which already includes mobile payments and credit cards. Called Apple Pay Later, the service will allow users to pay for things over four equal installments, paid monthly without interest.

That puts BNPL players like PayPal, Affirm and Klarna in an awkward spot. The fear is that Apple, a $2 trillion company and the world’s second-largest smartphone manufacturer, could draw clients away from such services. Shares of Affirm have sunk 17% so far this week on the news.
The BNPL market had already been showing signs of trouble. Last month, Klarna laid off 10% of its global workforce, blaming the war in Ukraine and fears of a recession.
A triple whammy of rising inflation, higher interest rates and slowing economic growth have put the industry’s future in doubt. Climbing borrowing costs have already made debt more expensive for some BNPL firms.
“It’s going to end up in trouble because credit always has to unwind and get paid back,” Charles McManus, CEO of U.K. fintech firm ClearBank, told CNBC at the Money 20/20 Europe fintech conference in Amsterdam.
“As interest rates start rising and inflation starts rising, all the chickens will come home to roost.”

McManus said the sector is pushing people into debt they can’t afford to pay back and should therefore be regulated. The U.K. is seeking to push through BNPL regulation, while U.S. regulators have opened a probe into the sector.
“Do I pay my gas bill or do I pay off the armchair I bought three years ago on interest-free credit that is coming due?” McManus said, warning that “excesses always come back.”
Apple said it will handle lending and credit checks for Apple Pay Later through an internal subsidiary, taking Goldman Sachs — which has previously worked with the firm on its credit card — out of the equation. The move is a significant step that will give Apple a much bigger role in financial services than it currently plays.
Speaking on CNBC Friday, Klarna CEO Sebastian Siemiatkowski said the launch of Apple Pay Later was an “amazing” thing for consumers and defended his company’s business model.
“This is a better model for consumers than the traditional one of credit cards,” he said. Klarna is a more agile lender compared to banks and “actually extremely recession-proof,” Siemiatkowski added.
Ken Serdons, chief commercial officer of Dutch payments start-up Mollie, said Apple’s BNPL feature “raises the bar” for fintechs operating in the market. Mollie offers installment loans through a partnership with fellow fintech firm in3.
“The BNPL space is getting crowded with lots of new players still entering the market,” he said.
“It will be hard for players with a subpar proposition to compete effectively against the best players out there.”
However, James Allum, senior vice president of Europe at payments firm Payoneer, said there’s enough room in the market for various different companies to compete.
“Businesses should be looking at opportunities for collaboration rather than competition and threats,” he said.

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A Tesla dealership is seen in West Drayton, just outside London, Britain, February 7, 2018.
Hannah McKay | Reuters

Check out the companies making headlines in midday trading.
Tesla — Shares dipped 0.9%. The electric vehicle stock rose more than 2% earlier in the session after UBS upgraded the electric vehicle maker to buy from neutral. The firm said Tesla’s pullback this year offers an “attractive entry point” for investors. “We believe the operational outlook is stronger than ever before,” UBS said.

Signet Jewelers – The jewelry retailer’s shares advanced by roughly 9% after the company posted quarterly profit and revenue that beat analysts’ estimates and issued an upbeat forecast for the year. Signet also expanded its share repurchase authorization by $500 million.
Five Below — The discount retailer’s stock shed 1.4% following a slight beat on earnings but a miss on revenues in the recent quarter. Five Below cut guidance for the year.
Nio — Nio’s stock fell 7.6% following the Chinese electric vehicle maker’s recent quarterly earnings report. The company struggled during China’s Covid-19 lockdowns and is facing a margin squeeze unlikely to begin recovering until the third quarter, said CEO William Bin Li during an earnings call.
Novavax — Shares of the drugmaker tumbled 17.2% on news that the FDA could postpone a decision on Novavax’s Covid-19 vaccine. The FDA needs to evaluate changes to the drugmaker’s manufacturing process, a spokesperson told CNBC.
Ollie’s Bargain Outlet — The discount retailer’s stock jumped 4.3% on an upgrade from RBC Capital Markets to outperform from sector perform following Ollie’s recent quarterly report.

Skillsoft — Skillsoft’s stock plummeted 10.3% after the learning platform posted quarterly results. The company reported a smaller loss than analysts anticipated but posted revenue that fell below analysts’ expectations.
— CNBC’s Tanaya Macheel and Hannah Miao contributed reporting.

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In 2021, 14% of 401(k) plan investors left their employer due to a voluntary departure or retirement, according to Vanguard Group.
A record 48 million people quit their jobs last year, part of a trend dubbed the Great Resignation.
New hires often have a waiting period to contribute to their 401(k) plan or access their full employer match.

Damircudic | E+ | Getty Images

Saving in a 401(k) plan may be tough for workers who switch jobs frequently — a dynamic that’s come into greater focus amid the Great Resignation.
In 2021, 14% of people saving in a 401(k) plan left their employer, according to a new report from Vanguard Group, which is among the largest retirement plan administrators.

The share is up from 10% in 2017, according to Vanguard. It includes individuals who left their company for another job or venture and those who retired from their employer.
More from Personal Finance:Annuity sales buoyed by market fears, higher interest ratesHow to use a 529 college savings plan if student debt’s forgivenHere’s how to fight a higher-than-expected property tax bill
Overall, almost 48 million people quit their jobs last year, an annual record. That torrid pace of voluntary departures has continued in 2022.
There has been historic churn in the labor market as job openings surged to all-time highs and employers raised wages at the fastest pace in decades to compete for talent — enticing workers to seek out new opportunities elsewhere.
The mechanics of certain 401(k) plans mean many new hires can’t continue saving in their new workplace plan right away. And if your new employer offers a 401(k) match, those funds may take a few years to fully belong to you.

“Participants are changing jobs more frequently and may risk retirement savings interruptions,” according to Vanguard, which based its analysis on 1,700 workplace retirement plans with 5 million participants.

Waiting period

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In 2021, 72% of 401(k) plans allowed new hires to start saving immediately, according to Vanguard. The remainder had a waiting period of at least a month before employees could save; of them, 8% required one year of service.
Many businesses also have a waiting period before paying a 401(k) match. To that point, 62% of employers offering a 401(k) in 2021 began matching contributions immediately for new hires, according to Vanguard. Meanwhile, 18% required a year of service before paying a match.
Those matching contributions — essentially “free” money from your employer — may not belong to you immediately, though. Many businesses use “vesting” schedules to determine when savers have full access.

Fifty-one percent of 401(k) plans require at least one year of service before their matching contributions become fully available to participants, according to Vanguard; 25% require five or six years.
These dynamics make it more difficult for workers who leave their jobs and accept new employment to continuously save in a 401(k) plan for retirement.
Research shows that delays in saving (especially over lengthy periods) generally lead to smaller nest eggs for retirees due to how investment earnings compound over time.

Of course, there are other ways to save for retirement outside a workplace retirement plan. Workers can contribute to an individual retirement account, for example. But IRAs — whether traditional and funded with pre-tax earnings or Roth, using post-tax money — carry lower contribution limits and don’t have an employer match.
Workers can put up to $20,500 in their 401(k) accounts in 2022. Those age 50 and older can put away an additional $6,500.
Individuals can save up to $6,000 in an IRA in 2022 (and another $1,000 for those 50 and older).
However, there are income limits that apply to Roth IRA contributions. If you (or a spouse) are covered by a retirement plan at work, your traditional (pre-tax) IRA contributions may only be partially tax-deductible (or not deductible at all) depending on household income.  

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European Central Bank President Christine Lagarde is giving a press conference after the bank’s latest monetary policy decision.

The European Central Bank on Thursday confirmed its intention to hike interest rates at its policy meeting next month and downgraded its growth forecasts.
Following its latest monetary policy meeting, the Governing Council announced that it intends to raise its key interest rates by 25 basis points at its July meeting.
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Annuity sales this year are projected to eclipse an all-time high set in 2008.
Investors appear to be fleeing volatility in the stock market, while insurers are offering better terms amid rising interest rates.
Annuities may be well-suited for the risk-averse. But they’re not for everyone.

Svetikd | E+ | Getty Images

Annuities are on track for a banner year as consumers flee stock volatility and insurers offer more attractive rates.
Limra, an insurance industry group, forecasts annuity sales of $267 billion to $288 billion in 2022, eclipsing the record ($265 billion) set in 2008. Consumers pumped $255 billion into annuities last year — the third-highest annual total, according to Limra.

There are many types of annuities. They generally serve one of two functions: as an investment or as a quasi-pension plan offering income for life in retirement.
Insurers offer buyers guarantees that hedge risk like market volatility or the danger of outliving savings in old age.

Recently, consumers have ramped up spending on annuities in categories that suggest buyers are investors seeking to protect money from gyrations in stocks and bonds, and less so seniors seeking steady retirement income, according to industry experts and financial advisors.
The S&P 500 Index is down more than 13% this year as investors digest concerns about economic growth and the war in Ukraine. The Bloomberg U.S. Aggregate bond index is down more than 9%. Bond prices have been pressured as the Federal Reserve raises its benchmark interest rate to tame inflation. (Bond prices move opposite to interest rates.)
“It’s a fear trade,” Lee Baker, a certified financial planner based in Atlanta and founder of Apex Financial Services, said of higher annuity sales.

More from Personal Finance:Americans willing to make these changes to Social SecurityUnemployment plagued by delays, fraud, racial gaps during CovidOptions for handling that unpaid workplace 401(k) loan
Insurers have also offered consumers better payouts and guarantees on all types of annuities amid rising interest rates, which boost profits for insurance companies.
Baker expects some consumers are buying the sales pitch — insulation from market volatility — without fully understanding the product they’re purchasing.
There are some tradeoffs, he said. Insurers generally charge a premium for their guarantee — which may make an annuity costlier than investments like mutual funds. Consumers also generally can’t touch their money for many years without penalty, with some exceptions.
“There’s no free lunch,” Baker said.

‘Concerned with risk’

Srdjanpav | E+ | Getty Images

Consumers bought $16 billion of fixed-rate deferred annuities in the first quarter, up 45% from Q4 2021 and 9% from the same time last year, according to Limra.
These work like a certificate of deposit offered by a bank. Insurers guarantee a rate of return over a set period, maybe three or five years. At the end of the term, buyers can get their money back, roll it into another annuity or convert their money into an income stream.
Average buyers are in their early to mid-60s — near traditional retirement age and looking to protect their money as they shift out of work, according to Todd Giesing, who heads annuity research at Limra.

It’s a fear trade.

founder of Apex Financial Services

Indexed annuity and buffer annuity sales were up in the first quarter (by 21% and 5%, respectively) relative to the same time last year, according to Limra.
Each hedges against downside risk to varying degrees. These annuities are tied to a market index like the S&P 500; insurers cap earnings to the upside when the market does well but put a floor on losses if it tanks.
Ted Jenkin, an Atlanta-based CFP, likens the annuities to bowling with bumpers to avoid throwing a gutter ball.
“We don’t use them all of the time,” said Jenkin, chief executive and co-founder of oXYGen Financial. “We present it to clients who are concerned with risk.”

Meanwhile, annuities geared more for retirees seeking pension-like income haven’t garnered as much enthusiasm from consumers. Immediate or deferred-income annuities (which start paying income now or years in the future) captured $1.5 billion and $370 million in the first quarter, respectively, Limra said. Those figures are flat and down 14% from Q1 2021, respectively.
However, Giesing expects that enthusiasm to grow if interest rates continue to rise, as is expected.

Bond substitute

Risk-averse investors interested in a fixed-rate deferred, indexed or buffer annuity should generally allocate a portion of their bond portfolio to the purchase as a substitute, Baker said.
“Long term, I think the math is in favor of a diversified portfolio of bonds, equities and real estate,” Baker said of annuities. “But for some people, they can’t stomach it.”  
There are also exchange-traded funds that accomplish the same goal a lot cheaper, he added.
Financial planners recommend comparing annuity quotes from different insurers. Consumers should also consult a firm like S&P Global Ratings, A.M. Best Company, Fitch Ratings or Moody’s to ensure the insurer has a strong credit rating.

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Check out the companies making headlines before the bell:
Target (TGT) – The retailer’s stock gained 1% in the premarket after it announced a 20% dividend hike. Target will increase its quarterly payout to $1.08 per share from 90 cents.

Signet Jewelers (SIG) – The jewelry retailer’s stock rallied 5.1% in the premarket after it posted better-than-expected quarterly profit and revenue, and issued an upbeat full-year forecast. Signet also expanded its share repurchase authorization by $500 million.
Novavax (NVAX) – The drug maker’s shares slid 5.3% in premarket trading following news that an FDA decision on approval of Novavax’s Covid-19 vaccine could be delayed. An FDA spokesperson told CNBC that the agency needs to review changes in the company’s manufacturing process.
Nio (NIO) – Nio shares lost 5.7% in the premarket after the China-based electric vehicle maker’s quarterly report highlighted shrinking profit margins and a downbeat outlook due to supply chain challenges. Nio posted a smaller-than-expected quarterly loss with revenue topping analyst forecasts.
Intel (INTC) – Intel announced a hiring freeze at its Client Computing Group as it reassesses spending priorities amid global macroeconomic uncertainty. The move comes amid a slide in worldwide personal computer demand.
Tesla (TSLA) – Tesla shares jumped 3.2% in premarket trading after UBS upgraded the stock to “buy” from “neutral,” saying the recent share price decline has provided an attractive entry point given a strong operational outlook.

Five Below (FIVE) – Five Below reported a quarterly profit of 59 cents per share, a penny above estimates, but revenue fell below analyst forecasts. The discount retailer also cut its full-year guidance. The stock slumped 7.6% in the premarket.
Ollie’s Bargain Outlet (OLLI) – Ollie’s was upgraded to “outperform” from “sector perform” at RBC Capital Markets, setting up the discount retailer’s stock for a possible sixth straight day of gains. The upgrade follows the company’s quarterly earnings report, which fell short of analyst forecasts but also contained an upbeat current-quarter forecast. Ollie’s gained 3.5% in premarket trading.
Skillsoft (SKIL) – Skillsoft tumbled 9.3% in premarket action after the digital learning company’s quarterly sales fell below Wall Street forecasts, although it reported a smaller-than-expected loss. Skillsoft said it was trending toward the lower end of its prior full-year forecast due to macroeconomic headwinds.

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