Robinhood Financial has been fined $1.25 million by the Financial Industry Regulatory Authority (FINRA) over what the agency calls “execution violations” tied to customer equity orders, along with other supervisory failures. FINRA, overseen by the Securities and Exchange Commission, regulates brokerage firms that do business with the public in the U.S. Robinhood neither admitted nor denied the charges in the settlement.
FINRA accused the brokerage of failing to make sure clients were getting the most favorable prices possible from October 2016 to November 2017. Instead of considering venues that may have offered a better deal for its clients, Robinhood sent its customers’ trades to four broker dealers that paid it for the orders. That controversial industry practice is known as payment for order flow. FINRA said also said that the written supervisory procedures for making sure Robinhood received the best trade execution possible for customers were inadequate.
As part of the settlement, Robinhood agreed to retain an independent consultant to perform a comprehensive review of its systems and procedures related to best execution. A spokesperson for the brokerage said issues described in the settlement do not reflect how the company operates today. The spokesperson said, “Over the last two years, we have significantly improved our execution monitoring tools and processes relating to best execution, and we have established relationships with additional market makers.”
Robinhood, which caters to Millennials and new investors, has amassed more than 10 million users in its six years of operation. The firm, based in Menlo Park, Calif., became famous for offering zero-commission stock trading and led many established players to abolish commissions. Robinhood is backed by a number of major venture capital firms and recently raised $323 million in its last finding round. The company is valued at nearly $9 billion.
