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

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

#191

Post by vel0city » Thu, Dec 17, 2020, 5:25 PM UTC

d33lio wrote: post #74

argonaut wrote: post #66

Earlier quoted context omitted.

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.

Sure, but they don't promote buying crypto as an "investment". Tbh, I don't really have the patience to argue over this.

> An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth. https://www.investopedia.com/terms/i/investment.asp

Buying Beanie Babies or tulip bulb futures or cryptocurrencies because you expect the value to increase over time is absolutely an "investment". They might be good or bad ideas to invest in, but they're without a doubt an investment.

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

#192

Post by sesuximo » Thu, Dec 17, 2020, 5:26 PM UTC

vslira wrote: post #184

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…

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?

More like you want to buy something that would cost 100, and RH got paid 5 to send your order to a trading company, and that trading company executed at 101.

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

#193

Post by gigatexal » Thu, Dec 17, 2020, 5:26 PM UTC

Wheaties466 wrote: post #89

gigatexal wrote: post #85

If it’s free you are the product. Why is that so hard for people to grasp?

so now we're victim blaming for robinhood not disclosing where they make money?

Nobody is the victim here. People got a free service to buy stocks and Robinhood sold that deal flow to bigger investors.

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

#194

Post by mszcz » Thu, Dec 17, 2020, 5:27 PM UTC

brookshalladay wrote: post #64

I always wondered about the name 'Robinhood' since it applies taking from the rich and giving to the poor. Maybe it could be renamed to Sheriff of Nottingham.

Yeah, it seems it's a recurring theme nowadays with companies - you either die a hero or live long enough to see yourself become the villain.

And this time the company is named Robinhood? You really can't make that stuff up.

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

#195

Post by [deleted] » Thu, Dec 17, 2020, 5:30 PM UTC

vslira wrote: post #184

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…

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?

[deleted]

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

#196

Post by aynyc » Thu, Dec 17, 2020, 5:32 PM UTC

sesuximo wrote: post #192

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?

More like you want to buy something that would cost 100, and RH got paid 5 to send your order to a trading company, and that trading company executed at 101.

RH orders aren't LIMIT HELD orders?

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

#197

Post by willdearden » Thu, Dec 17, 2020, 5:34 PM UTC

vslira wrote: post #184

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…

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?

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.

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

#198

Post by [deleted] » Thu, Dec 17, 2020, 5:34 PM UTC

jstummbillig wrote: post #170

sagarm wrote: post #136

Earlier quoted context omitted.

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?

[deleted]

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

#199

Post by bostik » Thu, Dec 17, 2020, 5:36 PM UTC

_jal wrote: post #98

jamesmehaffey wrote: post #93

It is a shame that these types of tech companies are always churning up such bad publicity... they literally cannot afford to be making these sorts of unforced errors. It just makes it that much more difficult for all the innovative and honest startups who are trying to bring about positive disruption. cutting corners and misleading your customers is not innovation.

It isn't just finance startups. With one exception, every startup I've worked for has done something I considered at least sketchy. The difference is most of them didn't have a federal agency with teeth paying attention. It is, honestly, something I struggle with a bit. I don't like it, but it seems like the state of play is that "a little bit" of cheating is expected, and those who don't are at least operating at a…

It's not just startups and/or SV. People generally don't like me bringing this up, but there is a good rule of thumb for everything in life:

The only people who play fair are those who don't know how to cheat well enough.

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

#200

Post by pdovy » Thu, Dec 17, 2020, 5:37 PM UTC

The payment for order flow piece is a little confusing as presented in the press release, but the actual SEC order makes this a little clearer: https://www.sec.gov/litigation/admin/2020/33-10906.pdf

Basically there are two ways broker-dealers that want to do business with Robinhood or similar firms can provide incentives:

1. Pay the flow provider (i.e., Robinhood) some amount per order/share

2. Provide price improvement over the prevailing market price to the end customer (which the provider can then use to market themselves as providing good execution).

Ultimately both of these are coming out of the broker-dealers bottom line, so the unit economics have to work - (1) and (2) have to leave a positive profit margin on average. Typically a firm like RH would be monitoring execution quality and negotiating price improvement requirements with the broker-dealer. This order finds that RH failed to do that, and likely as a result of their demand for high payment for the order flow, (2) was below their peers while they were stating otherwise in their marketing materials.