SEC charges Robinhood $65M for misleading customers about revenue sources • Hacker News Board

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#241

Post by ummonk » Thu, Dec 17, 2020, 7:25 PM UTC

argonaut wrote: post #66

d33lio wrote: post #56

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...

Schwab also receives payment for order flow (AKA selling your orders): https://www.schwab.com/legal/order-routing-1 . In fact, every retail brokerage I'm aware of receives payment for order flow. Schwab also has outages although not as bad as Robinhood was this year.

Is Interactive Brokers not considered a retail broker?

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#242

Post by tptacek » Thu, Dec 17, 2020, 7:42 PM UTC

hef19898 wrote: post #238

room500 wrote: post #204

Earlier quoted context omitted.

No. If you had a limit buy, Robinhood would never exceed your limit. Period. That would be highly illegal. This is more like you want to buy something at 100. Robinhood then goes to the market and looks at all the vendors. The vendors are selling at various prices. Robinhood has a relationship with one of the vendors so they went there and that vendor was willing to sell at 98. However, a vendor down the street (that…

I always wondered how these companies made money. My first suspicion was, that they "fed" stupid retail clients thay had no place in trading to the big fishes. I learned so much in this thread, making it one of my favorites. And showing again why HN is the great thing it is. Also, even I wasn't really right, RH and others sure found a way to price and sell an existing service better than incumbents. And in good disru…

The "certain regulation" here is simply that you can't advertise to your customers that you're getting them the best possible deal when you have deliberately chosen not to give them the best deal. As the SEC points out: their pricing isn't better than traditional brokerages. This isn't like Uber, where the lie is that the low prices are subsidized by investors and will be jacked up later on down the road; here, the lie is taken directly out of the hide of RH customers.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#243

Post by [deleted] » Thu, Dec 17, 2020, 7:46 PM UTC

ehejsbbejsk wrote: post #116

bagacrap wrote: post #106

Earlier quoted context omitted.

The article states that RH cost its consumers more in bad trade execution than it saved them in commissions. How are you sure this didn't happen to you?

I trade in multiple platforms and I put in limit orders (RH doesn’t even allow market afaik). To be fair, I am probably not your typical trader since I’ve been a fintech developer in the past as well as have been involved in analyzing many SEC cases for/against major financial institutions. I will say this: it’s extremely hard to prove execution quality on options trading let alone doing it in 2020 when the market wa…

[deleted]

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#244

Post by hansvm » Thu, Dec 17, 2020, 7:47 PM UTC

giobox wrote: post #202

hansvm wrote: post #157

Earlier quoted context omitted.

Yes, and the extent that matters depends how much people care. Uber was nickel and dimed by a billion dollars in arbitration fees (significantly more than an expected class action valuation) -- the binding arbitration clause cuts both ways.

It’s about more than just the cash cost though. In many jurisdictions court cases decisions can create legally binding precedent. Arbitration typically does not, a critical advantage when Uber was very busy trying to make sure courts the world over never decided drivers are employees etc. Arbitration could never really make that distinction binding, risk a court might.

That's a fair point.

Mildly off-topic: What do you think about alternative systems (e.g. UBI) which decouple safety nets from employment? I'm still young and naive, but it seems like we could avoid the whole legal morass of contractor vs hourly employee vs salaried employee who must be paid for extra hours worked vs "real" salaried employee, state constitutional amendments requiring 7/8 supermajorities to overturn, having your health records privy to your employer, having to pay 2x (even accounting for employer contributions) for worse health coverage if you're not employed by _somebody_, and all the other garbage in our current system (forgive the USA-centric view).

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#245

Post by Alupis » Thu, Dec 17, 2020, 7:50 PM UTC

How is this company still around? How many times have they been in trouble with some government agency, SEC or other?

From pretending to be a bank[1], to having a bunch of accounts looted and no ability to stop it[2], now this, and I'm sure others I'm forgetting right now.

It seems this company is really not a smart place to park any serious amount of money with. They don't take their responsibilities very seriously; carelessly flaunting the law and financial regulations.

[1] https://www.axios.com/robinhoods-new-checking-account-b2b0df...

[2] https://www.bloomberg.com/news/articles/2020-10-09/robinhood...

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#246

Post by treis » Thu, Dec 17, 2020, 7:54 PM UTC

tptacek wrote: post #203

vslira wrote: post #184

Earlier quoted context omitted.

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?

There is a notional standard "best price", the NBBO, that a broker-dealer has to meet; you can't take payment to route an order somewhere that doesn't meet the NBBO. But the NBBO captures pricing from all kinds of traders. Retail traders are cheaper to trade with than institutional traders, because retail traders aren't moving gigantic blocks of stock that are going to blow up the market makers that are facilitating…

>20/80 is worse than other retail brokerages (virtually all of which do PFOF, because none of them are especially competent at actually executing trades) --- even if you factor in the lack of trading fees,

(1) I don't think you can make a blanket statement about the split and trading fees. If I bought 1 stock for $100 this year I'm better off with the 20/80 split than a trade commission. Conversely, if I bought 10,000 shares @ $100 I would be better off paying a commission and getting a 80/20 split.

It's also not clear what's better for the consumer. If I'm paying a commission then I have to trade sub-optimally in order to batch trades. Maybe I'm better off being able to make a trade for free when I need it even if it costs me more in fees.

(2) This seems like an odd standard. I can take 20% as a rebate because everyone else does, but I can't take 80% because no one else does that. So maybe I can take 25% or maybe 30% or maybe 35% and that's ok. Where exactly is the line?

And if someone launches a competitor called Jesse James and they take 80% does that mean Robinhood is now ok? Or is two not enough? And if two is not enough then how many does it take?

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#247

Post by kasey_junk » Thu, Dec 17, 2020, 8:02 PM UTC

jjtheblunt wrote: post #217

willdearden wrote: post #197

Earlier quoted context omitted.

More like broker 1 offered it to me for 95 and to pay Robinhood 1. Broker 2 offered it to me for 97 and to pay Robinhood 2. Robinhood took the offer from broker 2. No collusion necessary but they weren’t acting in the best interests of their customers according to stated offers.

I always thought that Robinhood's customers were not folks with the Robinhood app, but rather the association of their traffic with clearing houses like Citadel?

That may be true in the “your customers are who pay you” judgement but it’s definitely not true in the “who you have a fiduciary duty to” sense.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#248

Post by legutierr » Thu, Dec 17, 2020, 8:08 PM UTC

smabie wrote: post #226

tptacek wrote: post #222

Earlier quoted context omitted.

You are putting it almost exactly how Matt Levine puts it. I would just sneak in the point that, to my understanding --- and the previous commenter would know better than I do --- one of the big information advantages institutional traders have is simply the knowledge that their order is the first of 1000 identical orders they're about to follow up with.

Yes, this is also a good point. Retail trades are more likely to express real demand. When a retail traders puts in an order for 135 shares, say, it's most likely that's an accurate and complete signal of that traders intentions: they are looking to buy 135 shares. For institutional players, it could be an iceberg order: once the 135 shares are filled, the refill the order with another 135, again and again. So the ac…

What's the specific risk when handling these trades? Is it that the quoted price should be higher, given that there is more demand than there seems to be?

If that's the risk, though, it's not a risk of loosing money you have, but rather a risk of not making as much money as you could by selling at a higher price, right?

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#249

Post by ram_rar » Thu, Dec 17, 2020, 8:10 PM UTC

allenz wrote: post #178

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…

Does it mean that its always better to do limit orders as apposed to market order in RH? I'm guessing, its a lot more easy for RH to give you sub-optimal prices for market orders.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#250

Post by bhelkey » Thu, Dec 17, 2020, 8:21 PM UTC

donohoe wrote: post #53

I feel that if a company is paying a fine of 1M or more, someone should also be going to jail - otherwise there is not going to be any meaningful accountability.

> Robinhood agreed to pay $65 million to settle the charges. ... Without admitting or denying the SEC’s findings, Robinhood agreed to a cease-and-desist order prohibiting it from violating the antifraud provisions of the Securities Act of 1933 and the recordkeeping provisions of the Securities Exchange Act of 1934, censuring it, and requiring it to pay a $65 million civil penalty.

A slight quibble, Robinhood and the SEC settled. There was no fines issued.

I do think that the threat of being sent to jail would be a much better deterrent than the threat of losing 2x the money gained by doing something illegal.