Robinhood hit with fine for trading practices - Business Insider - Business Insider

This story was delivered to Business Insider Intelligence Fintech Pro subscribers earlier this morning.To get this story plus others to your inbox each day, hours before they're published on Business Insider, click here.Commission-free trading platform Robinhood was hit with a $1.25 million by the Financial Industry Regulatory Authority (FINRA), which regulates US broker-dealers, per Quartz. Robinhood was slapped with the fine because it did not ensure users received the best prices possible October 2016 through November 2017 — however, it wasn't disclosed how much harm was caused to users over the period. The fintech has neither denied, nor confirmed the claims.

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Robinhood makes money selling customer orders to high-frequency trading firms — and while a legal and common practice, it's a controversial one, as clients don't know whether they're getting a good price on their trades. Some trading firms purchase a retail-investor order from a broker and execute the trade for them in order to profit from the difference between the bid and order. So, brokers like Robinhood get a share of that money. And there are concerns about this practice because brokers could potentially choose a firm that gives them the highest cut, rather than the best deal for end users.While this adds to a slew of issues Robinhood has faced recently and could be bad news for its reputation — $1.25 million is small potatoes for the fintech giant and several signs show that this is more of a slap on the wrist than a major cause of concern for Robinhood. This fine adds to a series of controversies around Robinhood, including a botched attempt to launch a checking and savings accounts with a 3% interest rate, as well as recent issues with its app that gave users infinite leverage when trading stocks.However, Robinhood also raised a $323 million Series E funding round in July led by DST Global, giving it a $7.6 billion valuation, suggesting that investor confidence in the startup is still strong. Additionally, the fintech announced earlier this month that it has surpassed 10 million users, which is a testament to its business model and customer experience.A spokesperson from Robinhood cited by Quartz also pointed out that the fine relates to a historic issue, and is not reflective of how the fintech operates today, which could further boost confidence of existing and prospective users. Hence, this fine is likely more of a warning for Robinhood to ensure that it operates according to customer expectations moving forward.Want to read more stories like this one？ Here's how to get access: Sign up for Fintech Pro, Business Insider Intelligence's expert product suite tailored for today's (and tomorrow's) decision-makers in the financial services industry, delivered to your inbox 6x a week. /> /> Get StartedJoin thousands of top companies worldwide who trust Business Insider Intelligence for their competitive research needs. /> /> Inquire About Our Enterprise MembershipsExplore related topics in more depth. /> /> Visit Our Report StoreCurrent subscribers can log in to read the briefing here.