[earn legit money online free]Robinhood’s ‘Free Trading’ Came With a Catch, SEC Says

  Robinhood did not admit or deny wrongdoing, but agreed to a censure, and to hire an independent consultant to review its customer communications and trade execution.

  A Robinhood spokesperson said the company is “fully transparent in our communications with customers about our current revenue streams, have significantly improved our best execution processes, and have established relationships with additional market makers to improve execution quality.”

  The SEC’s order comes one day after the Secretary of the Commonwealth of Massachusetts announced even more wide-ranging claims that the company’s business model puts customers at risk.

  Robinhood’s smartphone app and its early embrace of free commissions has upended the brokerage industry. The company has done especially well during the pandemic, adding at least 3 million customers in the first five months of the year, more by far than any of its competitors.

  But its promise of “free trading” was built on a business model that was not adequately explained to customers from 2015 to 2018—and the company didn’t get the best execution on trades, according to the SEC.

  “As the SEC’s order finds, one of Robinhood’s selling points to customers was that trading was ‘commission free,’ but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices,” the SEC said in a statement.

  Robinhood, meanwhile, was claiming that its execution was as good or better than its competitors, the agency said. In fact, the execution on the trades was so bad that it outweighed the benefit that Robinhood customers received from free commissions, the SEC said. In total, the SEC found that the inferior trades cost customers $34.1 million even after taking free commissions into account.

  “Brokerage firms cannot mislead customers about order execution quality,” said Stephanie Avakian, director of the SEC’s enforcement division.

  Robinhood makes most of its money from payment from order flow, a legal practice that involves taking a cut of the profits that market-makers earn by executing client trades. Other brokers do this too, but tend to rely on it much less for their revenue. And the details of those orders are crucial — brokers are supposed to route client trades so they get the best execution.

  The company stressed that the issues in the SEC complaint are in the past. The company has beefed up its legal, tech and customer service departments in the past year as it has drawn more scrutiny. It hired Dan Gallagher, a former SEC commissioner, as its chief legal officer in May.

  “The settlement relates to historical practices that do not reflect Robinhood today,” Gallagher said in a statement. “We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”

  Write to Avi Salzman at avi.salzman@barrons.com