The Financial Industry Regulatory Authority (FINRA) announced on Wednesday that it’s fining Robinhood almost $70 million to settle charges over issues it identified with the company’s stock trading service. The authority claims that the financial app company neglected its duty to supervise trades, maintain its own technology, and protect its customers. The fine is the largest in FINRA’s history and Robinhood has agreed to pay. FINRA says since 2016 Robinhood has periodically provided false and misleading information on topics like whether customers were able to place trades on margin (using credit from Robinhood to buy shares), including displaying inaccurate information in its app on how much cash was in customers’ accounts. The death of Alex Kearns, who died by suicide after finding a negative $730,000 balance in his Robinhood account from unintentional margin trades. Robinhood was sued following Kearns’ death and ultimately settled for an undisclosed amount. FINRA also takes issue with Robinhood’s reliance on algorithms to approve customers for options trading and the outages the platform has suffered, locking customers out of their accounts “during a time of historic market volatility.” For those errors and failing to report customer complaints to FINRA, the financial authority is requiring Robinhood to pay a $57 million fine and $12.6 million in restitution to affected customers. Robinhood hasn’t owned up to FINRA’s complaints or denied them, but it did say in a statement that: We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all. The timing for all of this is pretty poor for Robinhood. While FINRA doesn’t directly take issue with the company’s role in the rush to buy GameStop stock earlier this year, Robinhood is expected to go public soon, and a multimillion-dollar fine is kind of a gigantic blemish. Robinhood is attempting to address some of FINRA’s problems without fully acknowledging them. In a company blog post published on Wednesday, Robinhood announced it’s expanding its customer support team, planning on offering “enhanced in-app educational resources,” and attempting to address the issues around providing accurate customer information and supervision on trades. Your guess is as good as mine whether that will be enough. IPO talking 30 to 40 BILLION range
Robinhood is the equivalent of those casino-style MM brokers in retail Forex or I should say Forex CFD industry. Its internalization of trades using entirely payment for orderflow creates direct conflict of interest because it's now trading directly against the client. It's not surprising that many of the phenomenons like the convenient system breakdown during the highest market volatility when the broker who has traded against the client could stand to lose more that happens all the time in retail Forex also happens with Robinhood: Its model also creates non-transparency of the true cost of trade. Its commission might be free but the loss for the trader in not having gotten the best price possible could be much larger than the commission that a trader would otherwise pay. Robinhood is not a charity organization; its main goal is to make money. Why would it be so willing to forgo charging commissions and yet is still making money? The reason is obvious. It must be making money elsewhere that more than compensates for the loss of commission that it doesn't charge. Then for the client, if the cost that it's paying before is the commission and now it's not and the business is not only still standing but actually thriving then the client must be paying more than commissions to support the business, how much more the client doesn't even know. And CFTC has actually banned casino-style MM brokers to operate in the USA for retail Forex. If it has banned casino-style MM brokers to operate in retail Forex, it should do the same in stock trading industry and either ban Robinhood instead of just fining them or Payment for Orderflow. What's the point of existence of central exchanges when it's just a playground for market makers and still inaccessible for us ordinary traders? I thought electronic trading is supposed to give us access to the central exchanges to allow us to send orders directly to the central exchanges to be matched against other orders? The Futures can do it why can't it be done for stocks and options?
This reminded me of the payouts that Mark Zuckerberg made to his former partner, Saverin, the one he screwed over, and the Winklevoss twins, the ones he STOLE the Facebook idea from! It's just a "traffic ticket" to people like this. That's exactly how Robinhood views it... They really could care less.