SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution FOR IMMEDIATE RELEASE 2020-321
Washington D.C., Dec. 17, 2020 — The Securities and Exchange Commission today charged Robinhood Financial LLC for repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them, and with failing to satisfy its duty to seek the best reasonably available terms to execute customer orders. Robinhood agreed to pay $65 million to settle the charges.
According to the SEC’s order, between 2015 and late 2018, Robinhood made misleading statements and omissions in customer communications, including in FAQ pages on its website, about its largest revenue source when describing how it made money – namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as “payment for order flow.” As the SEC’s order finds, one of Robinhood’s selling points to customers was that trading was “commission free,” but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices. Despite this, according to the SEC’s order, Robinhood falsely claimed in a website FAQ between October 2018 and June 2019 that its execution quality matched or beat that of its competitors. The order finds that Robinhood provided inferior trade prices that in aggregate deprived customers of $34.1 million even after taking into account the savings from not paying a commission.
I never started trading with them and waited til the major brokerages matched the free commission as I was always getting a couple hundred free trades each year for being a frequent trader. It was obvious that their routing would be inferior, and even now there's quite a difference in clearing houses and routing between the major brokerages. TDA/Schwab has the best prices for you, Fidelity is ok and WF is inferior but by far not as bad as Robinhood. All from my experience making hundreds of trades most trading days.
It was obvious that their routing would be inferior,
This is true!
You usually get inferior crap for free shit but you have to credit them to start the trend towards zero commissions. The major players usually can and will match those price cuts without having to sacrifice their routing or clearinghouses. But if you make very infrequent trades it shouldn't matter that much, for frequent/day traders it makes a mountain of difference though.
Robinhood to cut 23% of its workforce, revenue sinks 44%
The latest cuts, which will affect 780 employees, continues a massive freefall for the once high-flying online brokerage. In a separate development Tuesday, the state of New York hit the Menlo Park, California, firm with a $30 million fine.
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