Robinhood and other retail brokerage firms generate revenue by way of high-volume merchants at the behest of customers.
Photo:
Andrew Herrer / Bloomberg News
WASHINGTON – Robinhood Financial LLC has agreed to pay ula 65 million to end regulatory claims that it has not disclosed enough of its business deals with high-speed trading companies, the Securities and Exchange Commission said Thursday.
The deal is the culmination of an SEC investigation that focused on Robinhood’s failure to disclose on its website how it made money from its deals with fast-trading companies such as Citadel Securities and Vertu Financial. Inc.
Robinhood and other retail brokerage firms generate revenue by paving the way for high-profile merchants to order customers, who pay for the right to run many businesses.
This practice, known as payment for order flow, can lead to conflicts of interest due to the incentive for brokers like Robinhood to send orders to the highest bidder. Retail brokers say the practice can generate slightly better prices for customers than trading on a stock exchange, and allow brokers to offer fur commissions-free trading.
However, Robinhood customers received prices that were “lower than the prices of other brokers,” the SEC said in a press release. However, the pay firm claimed on its website between 2018 and 2019 that the quality of its orders was better than that of its competitors, ‘the SEC said.
Robinhood resolved the case without acknowledging or denying the SEC’s allegations, saying the settlement applies to issues that “do not reflect Robinhood today.”
“Millions of investors have made their first investments and we are committed to continuing to develop Robinhood,” said Fisher Dan Gallagher, Robinhood’s Chief Legal Officer. ‘
As millions of new merchants sign up for the investment app Robinhood, the company is facing scrutiny to enable some inexperienced users to make risky bets. WSJ spoke with a financial education professional and two Robinhood traders about how the app is shaking up the brokerage industry.
Write to Dave Michaels at [email protected]
Copyright Pirate 20 2020 Dow Jones & Co., Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
.
