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September 2, 2020

Robinhood is reportedly under SEC investigation, could pay $10 million fine

[CNBC]

Popular trading platform Robinhood is under investigation related to its disclosures around its practice of selling clients’ orders to high-frequency traders, the Wall Street Journal reported Wednesday.

The Securities and Exchange Commission’s probe into the Silicon Valley start-up is at an advanced stage and could result in a fine of more than $10 million if the company agrees to settle, the Journal reported, citing people familiar with the matter.

How Robinhood Is Shaking Up the Brokerage Industry
As millions of new traders sign up for the investment app Robinhood, the company is facing scrutiny for enabling some inexperienced users to make risky bets. WSJ spoke with a financial education professional and two Robinhood traders about how the app is shaking up the brokerage industry.

Selling order flow is not illegal in itself and most brokerages do it. However, more of Robinhood’s overall revenue comes from the practice than other brokers.

Robinhood made $180 million in trading revenue in the second quarter, roughly double from the prior quarter, as investors flocked to platform seeking to ride the historic market rebound.

“We strive to maintain constructive relationships with our regulators and to cooperate fully with them. We do not discuss or comment on our communications with our regulators,” a Robinhood spokesperson told CNBC.

The SEC declined to comment.

The millennial-favored app, which offers commission-free trades, saw a historic 3 million new accounts in the first four months of 2020

By Yun Li

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