Service for trading on the exchange Robinhood was accused of selling data on applications to users of high-frequency traders
The publication on finance and technology Seeking Alpha published investigation About the financial start-up Robinhood. In particular, it claims that a service that offers users the opportunity to trade on the exchange without commissions, sells information about the high-frequency traders that they submit to bids. Robinhood filed with the US Securities Commission (SEC). From the documents it became clear that Robinhood sells data about orders (order flow) of its customers to HFT-companies.
This practice is legalized in the US brokerage services market, although there is no consensus on the ethics of such actions. Some large companies refuse to sell albeit impersonal, but customer data, Robinhood, according to journalists, sells them at a price, on average, ten times higher than usual.
What's wrong here is
According to the SEC, revenue from the sale of data on trade orders by users accounts for the bulk of Robinhood's revenue. Usually for brokerage firms this is not the main source of profit, since they make the main money on commissions for transactions and additional services.
Robinhood operates on a different model - the service provides access to the stock exchange without commissions. Thus, the creators hoped to attract to the market the milennials, young people, for whom investments seemed too complicated before. In the case of Robinhood, you can buy and sell shares directly in the mobile application, making svaypas and tapas or through a website.
Web version of Robinhood
Experts Seeking Alpha questioned that the practice of attracting users by offering "free" investments and selling data about their operations is completely legal and ethical. The author of the investigation is convinced that HFT-traders would not pay Robinhood ten times more than any other broker if they were not sure that they would be able to earn much more money on the data they received.
If US regulators find violations of the law, Robinhood is in serious trouble. Periodically, brokers are fined for significant amounts. For example, the popular Citadel in 2017 was fined to $ 22 million for violations of the laws on trading in shares, and the broker Wolverine Securities paid $ 1 million for violations of rules on insider trading.
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