Find A Fine 👨⚖️
The Securities and Exchange Commission is tasked with regulating the securities market and protecting investors. This time around, the SEC is protecting investors from well-known trading platform Robinhood for misleading its customers about how the company makes money.
Following the charge of deceiving customers and failing to deliver the promised best executions of trades, the company agreed to pay a $65 million civil penalty, without admitting or denying SEC’s findings. According to a Robinhood’s lawyer the practices “do not reflect Robinhood today.”
The SEC release a statement saying, “Between 2015 and late 2018, Robinhood had 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 a pioneer of “commission-free trading”, the online brokerage relies on payment for order flow as their main revenue stream. It is indeed a controversial practice but is in fact legal. What happens is Robinhood’s customers’ orders are then executed at prices that are inferior to other brokers, according to the report.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
Originally published at https://invstr.com on December 18, 2020.