Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

sec.gov

Post reply on HN
Print view View original

261–270 of 318 posts

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

#261

Post by toast0 »

ram_rar wrote: post #249
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.

Assuming they don't change their practices, it's always better to use a different broker. Robinhood was the first to eliminate comissions, but now most brokerages have also eliminated comissions, so say thanks to Robinhood and then use an established broker.

I would expect market and limit orders to have been handled similarly. Market makers would like to trade with retail investors, and they're willing to pay X for that; if Robinhood takes 80% of X, and passes on 20% to clients as price improvement, and other brokerages pass on 80%, your limit orders may execute sooner at other brokerages (as your limit is effectively 0.6X higher/lower), or may end up executing with bigger price improvement.

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

#262

Post by tptacek »

arcticbull wrote: post #256
tptacek wrote: post #223

Earlier quoted context omitted.

IB Pro is the reason I used the word "virtually". :P

Makes sense, I'm just shilling; I like IBKR. Not, you know, their app or website. Their order execution, margin rates and other features (debit card, bill pay) are really solid. And hey, no PFOF.

It's like a 0.3c/share difference between IBKR Pro and the price improvement you'd get at any other brokerage, right?

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

#264

Post by dhnajsjdnd »

LanceH wrote: post #141
_jal wrote: post #104

Earlier quoted context omitted.

One of many good reasons to worry about the composition of the SCOTUS - important cases effecting this very right are headed there, and this is the most "business-friendly" (as the euphemism goes) court in quite some time. Too bad it is probably too late on these issues; we're approaching a situation where an increasing amount of "little people" law will be handled in arbitration. Justice in the US has always provide…

I don't think you'll get anything more business friendly than "Kelo v. City of New London" and that was driven by the left. This is far more minor by comparison and protects the rights of people to enter into contracts, even those they don't like.

Arbitration affects almost most consumers and workers these days. Eminent domain is rare in comparison.

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

#265

Post by arcticbull »

tptacek wrote: post #262
arcticbull wrote: post #256

Earlier quoted context omitted.

Makes sense, I'm just shilling; I like IBKR. Not, you know, their app or website. Their order execution, margin rates and other features (debit card, bill pay) are really solid. And hey, no PFOF.

It's like a 0.3c/share difference between IBKR Pro and the price improvement you'd get at any other brokerage, right?

I haven't check it honestly, I don't really trade equities - I mostly sell equity options and index futures options. I use IBKR because of their low margin rates (1.25% for a 300K margin loan at the moment), their low commissions and their generous portfolio margin allowances.

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

#266

Post by aksss »

gypsy_boots wrote: post #97
_cs2017_ wrote: post #88

ELI5: why exactly did the clients get bad execution? Does sending order flow to trading firms in itself cause unfavorable execution? Or did the trading firms treat order flow from RH differently than from other sources? Or is it something else? And does the fact that RH was receiving large payments for order flow impact the quality of execution?

> Or did the trading firms treat order flow from RH differently than from other sources? I'm not well versed in financial language by any stretch, but i believe it's this. Matt Taibbi did a piece on them last week and goes into this. https://taibbi.substack.com/p/pandemic-villains-robinhood

That was a good article.

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

#267

Post by pgwhalen »

Kranar wrote: post #154
treis wrote: post #148

Earlier quoted context omitted.

All the press release says is: >Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ That could mean pretty much anything.

I disagree that your sentence fragment is all the press release says. I believe the press release says a lot more, such as Robinhood making substantial amounts of money from pay for order flow and Robinhood executing orders at prices that are not only worse than what is available on the market, but also worse than competing brokers, and this in spite of the fact that Robinhood advertises this to the contrary. These f…

> Robinhood executing orders at prices that are not only worse than what is available on the market, but also worse than competing brokers

This sentence doesn't make much sense given how PFOF works. It would make sense if it were flipped around and said "not only worse than competing brokers, but worse than what is available on the market" because brokers typically provide retail traders better than what is available on the market (assuming: public exchanges = market).

I agree with GP that the press release suggests that Robinhood was not giving worse prices than NBBO, but was instead giving prices better than NBBO (like every broker), but intentionally not _as good_ prices as other brokers, in exchange for greater PFOF.

I am not fundamentally against PFOF, but the "honesty" required on the part of the broker in situations like this has always troubled me, and it's interesting to see it rear its head. I think an ideal market structure might keep PFOF, but in a more public way, such that payments were more transparent/competitive in real time, and not something arbitrarily negotiated between brokers and wholesalers.

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

#268

Post by jellicle »

tptacek wrote: post #257
jellicle wrote: post #189

Earlier quoted context omitted.

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.

That's not what happened here. Everyone gets cash rebates for directing orders. Robinhood just dialed those rebates in higher than other firms, while claiming not to have done that.

It's exactly what happened here.

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

#269

Post by Kranar »

pgwhalen wrote: post #260
Kranar wrote: post #146

Earlier quoted context omitted.

Yes, exactly. That's what this submission and charge by the SEC is all about. Is everyone just forgetting the entire purpose of this submission is that Robinhood used pay for order flow to facilitate front running?

Front running is a very specific malfeasance, and this release does not accuse Robinhood of it, by name or otherwise.

Despite what many apologists claim about front running being this very specific and formal type of activity that never happens because it's illegal and no one involved in finance ever commits crimes, the reality is that front running is not a technical term, neither in law nor in any academic or formal financial treatment.

Front running is an informal term that is used in many different domains to refer to when a principal acting on behalf of a client uses privately obtained information gained from that client to benefit at the client's expense. The term is used in finance, it's used in real estate dealings, heck there was even a scandal involving domain name registrars front running their clients:

http://www.circleid.com/posts/81082_network_solutions_front_...

The more formal and academic term is the principle agent problem:

https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...

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

#270

Post by silexia »

toast0 wrote: post #261
ram_rar wrote: post #249

Earlier quoted context omitted.

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.

Assuming they don't change their practices, it's always better to use a different broker. Robinhood was the first to eliminate comissions, but now most brokerages have also eliminated comissions, so say thanks to Robinhood and then use an established broker. I would expect market and limit orders to have been handled similarly. Market makers would like to trade with retail investors, and they're willing to pay X for…

Use Interactive Brokers Pro, then you can put in market orders and know you'll get the best fair price.
Post reply on HN