Robinhood, a commission-free digital brokerage, has been hit with a $1.25 million Finra fine.
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Finra, the self-regulatory organization for the brokerage industry, claimed Robinhood didn’t do what was necessary to make sure it was getting the best prices for its clients’ orders, as The Wall Street Journal reports.
Robinhood agreed to pay the fine and settle the Finra claims without admitting or denying fault. It also consented to hire an independent consultant to review how it handles client orders.
Like some other online brokerages, Robinhood makes some of its money using a practice known as payment for order flow, in which it routes clients’ orders to high-frequency trading firms in exchange for cash.
The practice is legal but creates a conflict of interest, because the brokerage could just send its orders to the highest bidder, the newspaper notes. Thus, brokerage firms employing the practice must review how trades are executed.
A Robinhood spokeswoman is quoted saying “the facts on which the settlement is based do not reflect our practices or procedures today.”
Over the past 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,” she adds.
--Ross Snel
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December 21, 2019 at 04:48AM
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Robinhood Slapped With $1.25M Finra Fine - Barron's
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