Robinhood Staring At $10M Fine In SEC Probe Over Deals With High-Speed Traders: WSJ

Robinhood Markets Inc is facing a fraud investigation from the United States Securities and Exchange Commission related to high-speed trading firms, the Wall Street Journal  reported Wednesday.

What Happened: The trading app could be fined in excess of $10 million by the SEC as a part of the settlement. The federal regulator's San Francisco office is looking into the broker’s failure to fully disclose, until 2018, that it was taking payments from high-speed trading firms and sending them its customers’ orders, according to unnamed sources of the Journal.

The broker didn't disclose that one of the sources of its income was payments for order flow until Oct. 2018, from which the trading app generated less than half of its revenue in 2017 and almost half in 2018, as per the Journal’s sources.

An agreement between Robinhood and the market regulator is reportedly unlikely to be announced this month.

Why It Matters: In 2019, the Financial Industry Regulatory Authority, overseen by the SEC, fined Robinhood $1.25 million for similar violations that took place between Oct. 2016 and Nov. 2017.

Payments for order flow is legal but it must be disclosed, as per the SEC.

Robinhood’s popularity has exploded in 2020 during the coronavirus pandemic, with total number of customer accounts increasing to 13 million, as of May.  The trading platform is valued at $11.2 billion after its recent Series G funding round.

The Menlo Park, California-based trading app doesn't charge any commissions to people who trade stocks, options, and cryptocurrencies.

Robinhood halted its expansion into the United Kingdom indefinitely, after coming under pressure from lawmakers in the U.S. over the death of a 20-year old trader who killed himself after seeing a negative balance on his account.

In March, the trading  platform suffered an outage for an entire day, failing at a volatile time for trading.

Photo courtesy: Robinhood Markets Inc.