> 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. $65M penalty for $35M in misbehavior. That is how you get Wall Street to pay attention. More like this please!
Unless the likelihood of getting caught is less than 50% in which case this was still the smart financial move for the company based on expected value. The way to get people to pay attention is to hold people involved in corporate misdeeds personally liable.
This is a very tame reading of the mistake. Telling customers that their stock orders would be executed at prices matching other firms, when in fact Robinhood was executing those orders at inferior prices -- that's a big misrepresentation. You're paying extra for something while being told that you're not.
I don’t get it. If you sell stocks at the market price it wouldn’t be the market price but something cheaper that RB would buy and then sell at the real market price?
Retail orders generally trade with against market makers off-exchange, between the quoted market price. If the quote is Buy @ $1.00 x Sell @ $1.01, a retail order would be able to buy at a price like $1.0099.
That $.0001 savings is known as "price improvement". Separately, the market maker pays a negotiated ahead of time rate to Robinhood for sourcing the order, aka "payment for order flow".
I would say that $65M is a good investment from Robinhood perspective. As it has grown significantly since then due to this. The fact that SEC enforcement is 2 years in a high frequency world is in itself means it is just token enforcement. The trading world we should have enforcements as the trade happens.
To add a bit of context: brokerages like Robinhood send buy/sell orders to national exchanges and to private trading firms e.g. high-frequency traders. Private firms provide price improvement: orders that execute at prices better than the national exchange. All brokerages have a duty of best execution, including a duty of price improvement. Brokerages can also receive payment for order flow from private firms, as lon…
In order words: if I want to buy something that costs 100, the broker is free to get me a price of 95, but they were colluding with the players able to offer this discount to offer me 97 instead and pocket the extra 2, something like that?
> you just shut out good people who want to do good things but can't figure out rules It's not really that complicated to not work for a lobbying firm for 2 years after leaving a chief of staff position for a Senator. Nor do I particularly want people too dull to figure out those rules to be making laws for our entire country?
> Nor do I particularly want people too dull to figure out those rules to be making laws for our entire country? You make it sound like there's only like 3 or 4 rules to follow. > not work for a lobbying firm it's not really clear ultimately how you're going to enforce that. Laws against lobbying are already treading close to violations of the freedom of speech and right to petition the government; if there are struc…
> I would suggest thinking about the structural problems in how we are governed more than trying to patch over the system with rules.
I agree with that, I disagree with the idea that lobbying regulations somehow select for unscrupulous individuals - nor was your argument for that idea particularly well-reasoned.
Unless the likelihood of getting caught is less than 50% in which case this was still the smart financial move for the company based on expected value. The way to get people to pay attention is to hold people involved in corporate misdeeds personally liable.
50% x (-$65M) + 50% x $34M = -$15.5M You'd need better than 50-50 odds. ;)
Math is off it's
0.5 * -65M + 1 * 34M = +1.5M
They get the +34M 100% of the time, not 50%, they didn't have to surrender it.
Robinhood probably has a binding arbitration clause in their contract that prohibits users from joining a class action lawsuit, no?
You can put a clause in your contract that prohibits someone from using specific legal action at your discretion? That sounds wild so I am interested. What is the justification for this? How could anyone basically preemptively and effectively exempt themselves from specific legal action regardless of wrongdoing? What would happen if the other party tried anyway?
Oh, this is extremely common in the boilerplate of almost every single contract and ToS I've read in my adult life (IANAL, just referring to the contracts I've signed or chosen not to sign that I've come across). If you look at something like the contract for your credit card, I guarantee you'll find a clause entitled "Arbitration", "Mediation", or something akin to that where it basically says "If something bad happens, you give up your right to sue us and instead agree to binding arbitration by a mediator of our choice." As for what would happen if one party tried to sue the other anyway, I think it would depend on the nature of the grievance. Again, IAN[even_close_to_being]AL.
Robinhood probably has a binding arbitration clause in their contract that prohibits users from joining a class action lawsuit, no?
You can put a clause in your contract that prohibits someone from using specific legal action at your discretion? That sounds wild so I am interested. What is the justification for this? How could anyone basically preemptively and effectively exempt themselves from specific legal action regardless of wrongdoing? What would happen if the other party tried anyway?
You can put whatever you want in the contract. That doesn’t mean the court will honor it. That’s why TOS have severability clauses; so that the rest of the contract survives if a judge strikes down a clause as invalid during a lawsuit.
This is a very tame reading of the mistake. Telling customers that their stock orders would be executed at prices matching other firms, when in fact Robinhood was executing those orders at inferior prices -- that's a big misrepresentation. You're paying extra for something while being told that you're not.
I don’t get it. If you sell stocks at the market price it wouldn’t be the market price but something cheaper that RB would buy and then sell at the real market price?
Not Robinhood on the other end of the transaction, but yes.
If you and someone else both mashed SELL at the exact same instant, they'd get $48 for their stock and you'd get $47.99 and your confirmation screens would both say "we sold your stock at the highest price we could find".
In exchange for sending their customers to a place where they'd only get $47.99 instead of $48, Robinhood received direct cash payments.
They deserve every single bit of this. Please use a real reputable broker / platform like Schwab. Sure, they don't have a mobile app - but they also don't sell your trading info to front-runners, actively manipulate the charts they show you to influence your decisions and let their platform crash and just tell you "thats how things go". edit - I didn't realize Youtuber RH fanboys read hacker news...
Actually, brokers like Schwab do have mobile apps. They might not be as polished or pretty as RH but a lot of the bigger brokers have mobile apps which let you trade from your phone.