FINRA Fines Robinhood $1.25 Million for Best-Execution lapses
- Robinhood routed its customers’ non-directed equity orders to four broker-dealers, all of which paid for that order flow.
A Wall Street regulator today fined commission-free investing app Robinhood $1.25 million in a civil action for not getting the best Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term price for customer equity orders and failing to properly supervise the process.
The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms doing business in the United States, said the disciplinary case stems from an arrangement known in the brokerage industry as 'payment for order flow' between October 2016 and November 2017.
This controversial practice is a major part of Robinhood’s business and involves selling customer trades to certain trading firms. The popular millennial stock-trading app routed its customers’ non-directed equity orders to four broker-dealers, all of which paid Robinhood for that order flow, said Finra.
The so-called “payment for order flow” had reportedly brought in $70 million in revenue for Robinhood last year.
The industry rules require brokerages to use reasonable diligence to ensure that the transaction prices for customers’ trades are as favorable as possible amid the current market conditions. This duty of "best execution" is also incorporated FINRA Rule 5310, which provides standards for firms with respect to best execution.
No-fee model attracted 10 million users to Robinhood
The Financial Industry Regulatory Authority also said Robinhood did not perform systematic best execution reviews of several order types, such as nonmarketable limit orders, stop orders, and orders received outside of regular trading hours. As a result, hundreds of thousands of orders each month fell outside the firm’s “regular and rigorous” review process.
Commenting on the regulatory settlement, Robinhood said: “The facts on which the settlement is based do not reflect our practices or procedures today. The agreement relates to a historic issue during the 2016-2017 timeframe involving consideration of alternative markets for order routing, internal written procedures, and the need for additional review of certain order types. Over the last two years, we have significantly improved our execution monitoring tools and processes relating to best execution, and we have established relationships with additional Market Makers Market Makers Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Read this Term.
According to its recent metrics, Robinhood has ushered in ten million users, double than it was a year ago, and a $7.6 billion valuation in its six-year existence, up to $2 billion from its Series D valuation in 2018. Its free-commission model for stock trading has been successful in attracting millennials and put pressure on major brokerages that had to catch up with a wave of fee-eliminating announcements over the past two months.
For now, Robinhood can keep its free platform afloat through making compromises to some business aspects such as not having many physical locations, a small staff for client service, and not spending on massive promotional campaigns.
A Wall Street regulator today fined commission-free investing app Robinhood $1.25 million in a civil action for not getting the best Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term price for customer equity orders and failing to properly supervise the process.
The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms doing business in the United States, said the disciplinary case stems from an arrangement known in the brokerage industry as 'payment for order flow' between October 2016 and November 2017.
This controversial practice is a major part of Robinhood’s business and involves selling customer trades to certain trading firms. The popular millennial stock-trading app routed its customers’ non-directed equity orders to four broker-dealers, all of which paid Robinhood for that order flow, said Finra.
The so-called “payment for order flow” had reportedly brought in $70 million in revenue for Robinhood last year.
The industry rules require brokerages to use reasonable diligence to ensure that the transaction prices for customers’ trades are as favorable as possible amid the current market conditions. This duty of "best execution" is also incorporated FINRA Rule 5310, which provides standards for firms with respect to best execution.
No-fee model attracted 10 million users to Robinhood
The Financial Industry Regulatory Authority also said Robinhood did not perform systematic best execution reviews of several order types, such as nonmarketable limit orders, stop orders, and orders received outside of regular trading hours. As a result, hundreds of thousands of orders each month fell outside the firm’s “regular and rigorous” review process.
Commenting on the regulatory settlement, Robinhood said: “The facts on which the settlement is based do not reflect our practices or procedures today. The agreement relates to a historic issue during the 2016-2017 timeframe involving consideration of alternative markets for order routing, internal written procedures, and the need for additional review of certain order types. Over the last two years, we have significantly improved our execution monitoring tools and processes relating to best execution, and we have established relationships with additional Market Makers Market Makers Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Read this Term.
According to its recent metrics, Robinhood has ushered in ten million users, double than it was a year ago, and a $7.6 billion valuation in its six-year existence, up to $2 billion from its Series D valuation in 2018. Its free-commission model for stock trading has been successful in attracting millennials and put pressure on major brokerages that had to catch up with a wave of fee-eliminating announcements over the past two months.
For now, Robinhood can keep its free platform afloat through making compromises to some business aspects such as not having many physical locations, a small staff for client service, and not spending on massive promotional campaigns.