Robinhood’s cash cow under SEC scrutiny amid IPO filing

Published at: July 7, 2021

Trading platform Robinhood could lose a significant revenue source should the United States Securities and Exchange Commission move to ban the controversial payment for order flows (PFOF) — routing retail trading orders to market makers.

Brokers like Robinhood often use the practice to offset trading fees, thus providing zero commission trading to its retail customer base.

According to the Wall Street Journal on Wednesday, Robinhood’s initial public offering filing revealed that the broker earned 81% of its Q1 revenue from payment for order flows covering stock, options and crypto. As previously reported by Cointelegraph, Robinhood filed for its IPO on Thursday.

SEC Commissioner Gary Gensler has previously criticized the practice, and the GameStop saga from earlier in the year has also put the matter in the spotlight. Indeed, the company paid a $65million fine imposed by the SEC back in December amid allegations that Robinhood misled retail customers about the use of PFOF.

Meanwhile, Robinhood has stated that any SEC action against PFOF, including stringent regulations or an outright ban, could negatively impact its business. Payment for order flow is a banned practice in jurisdictions such as Canada and the United Kingdom.

The uncertainty over the SEC’s stance on PFOF under Gensler is the latest hurdle for Robinhood in its IPO journey. Back in June, the SEC’s inquiry into the company’s crypto trading business reportedly delayed its IPO filing.

Related: Facing $70M in fines from regulators, Robinhood files for IPO

Indeed, Robinhood’s crypto division has experienced significant growth in 2021 with its Q1 performance constituting a sixfold increase over the previous quarter. Back in April, the company announced a new chief operating officer to oversee its expanding cryptocurrency trading operations.

As previously reported by Cointelegraph, the U.S. Financial Industry Regulatory Authority fined Robinhood $70 million back in June. The FINRA fine was reportedly due to “widespread and significant harm” attributed to the company against thousands of its users.

Tags
Regulation
Sec
Trading
Business
Robinhood
Ipo
Related Posts
Exodus crypto wallet starts trading on SEC-registered platform
Major software cryptocurrency wallet Exodus has gone public on the digital asset securities firm Securitize Markets following a $75 million crowdfund capital raise. Exodus’ shares started trading on Securitize on Wednesday, allowing investors from all across the United States and international investors from more than 40 countries to trade the Exodus Class A common stock. Trading under the ticker symbol EXOD, the Exodus Class A common stock is digitally represented on the Algorand blockchain via common stock tokens. Tokenized shares in @Exodus_io are now trading on Securitize Markets. Retail investors included! With 24-7 order placement, 8am-8pm ET trading hours, near-instant …
Regulation / March 17, 2022
Crypto-friendly app Robinhood loses 8% in public Nasdaq debut
Shares of cryptocurrency-friendly trading app Robinhood dropped more than 8% in its public Nasdaq debut on Thursday, marking one of the worst initial public offering (IPO) debuts of its size. Robinhood’s HOOD stock tumbled 8.4% below the IPO price in the company’s first trading session on Thursday, dropping from $38 to $34.82. The company went public on Nasdaq at a $32 billion valuation to see its market capitalization fall to $29 billion after the HOOD stock ended the session below $35. According to data compiled by Bloomberg, the company’s first trading day marked the worst debut on record among 51 …
Trading / July 30, 2021
Robinhood files SEC paperwork for public offering
Robinhood Markets Inc., a popular trading app that recently expanded its cryptocurrency business, has filed paperwork with the United States Securities and Exchange Commission, or SEC, to go public. The company confirmed Tuesday that it had confidentially submitted a draft registration statement on Form S-1 with the SEC relating to the proposed public offering of its common stock. Form S-1 requires companies to provide more detailed information on the planned use of capital proceeds., as well as a brief prospectus on the proposed security. While Robinhood didn’t specify when the IPO would take place, it confirmed that a public offering …
Sec / March 23, 2021
‘Govts know digital assets are here to stay,’ upcoming exchange says
A Gibraltar-based company says it is building a digital asset exchange that will be fully compliant with regulations from the United States Securities and Exchange Commission, the Financial Industry Regulatory Authority and the European Union. According to INX, the evolution of blockchain-based currencies and assets is finally beginning to gain steam — and governments around the world are beginning to realize that digital payments are here to stay. The company’s team consists of top executives from some of the world’s biggest financial institutions, including American Express, Morgan Stanley, Standard Chartered, HSBC, TD Ameritrade and Societe Generale. INX says its vision …
Regulation / Oct. 16, 2020
DeFi will provide good regulatory test for SEC, says Commissioner Peirce
Hester Peirce, the commissioner for the U.S. Securities and Exchange Commission known by the nickname "Crypto Mom," welcomes the challenge of regulating decentralized finance. In a speech for a George Washington University Law School event on the digital economy, Peirce said decentralized finance, or DeFi, could be the alternative legacy financial system many are seeking given the surge in anti-Wall Street sentiment surrounding the short squeeze of GameStop stocks. The SEC commissioner said the technology could provide a "very good test" for the regulatory body in protecting investors and markets. "Although a work in progress with all the growing pains …
Regulation / Feb. 23, 2021