NEW YORK – Robinhood Financial agreed to pay $65 million to settle government charges that it failed to disclose the full details of its dealings with high-speed traders and didn't get the best prices for customers trading on its app, the Securities and Exchange Commission said Thursday.
Robinhood and other retail brokerage firms can bring in revenue by routing customers’ orders to high-speed traders and other big investors, which in turn pay for the right to execute many of the trades in hopes of making a profit.
The charges stem from an investigation by the SEC into how Robinhood disclosed its arrangements with high-speed traders. Robinhood neither admitted nor denied the SEC's findings under the settlement.
“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,’” the SEC statement read.
Regulators also concluded that Robinhood provided inferior prices for trades on its platform, depriving its customers of $34.1 million even after taking into account savings from commission-free trading.
“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” said Stephanie Avakian, director of the SEC’s Enforcement Division.
In a statement, Robinhood said it is “fully transparent” with customers about the ways it currently makes money and has taken steps to improve the process.
“The settlement relates to historical practices that do not reflect Robinhood today,” said Dan Gallagher, Robinhood's chief legal officer.