Robinhood, the brokerage service known for catering to inexperienced and unsophisticated investors, has agreed to pay $65 million.
The SEC accused Robinhood of executing its customer’s orders at inferior prices compared to other brokers. The company stated on its website that its order execution was “as good or better” than its rivals.
Robinhood will pay the $65 million and is not required to admit any wrongdoing.
Robinhood was founded in 2015 and pioneered commission-free trading for its users. It sells its user’s orders to high-frequency trading firms in a practice known as “payment for order flow.”
Most rival brokers have followed Robinhood’s lead and drop commission on listed stocks and ETFs. Most discount online brokers have used payment for order flow for years. The practice is legal.
The resolution of this probe is not the end of Robinhood’s legal troubles. The Massachusetts Securities Division, a state regulator, filed a complaint against the firm yesterday.
The complaint accuses Robinhood of exposing investors to “unnecessary trading risks” and says it has fallen short of its legal responsibilities as a broker-dealer.
The Massachusetts case will be heard by an independent hearing officer. Robinhood is allowed to appeal any decision made.
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