Robinhood looks to allow users to buy directly into IPOs, report says

Robinhood on cellphone


Robinhood is looking to allow its users to buy directly into initial public offerings, including its own, alongside institutional investors, Reuters first reported.

While the popular trading app – which confidentially filed IPO paperwork on March 23 – could easily implement this for its own debut, it remains to be seen how other companies will react to this move, knowing how limited allocations are to investors during new listings.

Further, Robinhood would still need to get the approval of US regulators and negotiate with companies and their brokerages, sources told Reuters.

Robinhood users and retail traders are currently not able to buy stocks of newly listed companies until they start trading, unlike Wall Street investors. If this initiative succeeds, it will be considered a win for retail traders as shares often trade higher when they debut in what is commonly known as a first-day pop.

The average pop on US listings in 2020 was 36%, according to data provider Dealogic as reported by Reuters.

Sources tell Reuters that the Menlo Park, California-based company plans to allocate a portion of shares on offer in its IPO for all of its 13 million users.

Read more: Cathie Wood says Tesla’s stock is going to $3,000 by 2025. 2 market experts break down whether that’s realistic and the catalysts that might lead the EV maker there.

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Congress just grilled a group of CEOs over the GameStop stock price fiasco in a hearing filled with heated exchanges, insults, and lots of technical difficulties

Robinhood CEO Vlad Tenev
Robinhood CEO Vlad Tenev.

  • On Thursday afternoon, Congress held a hearing to address the GameStop stock fiasco. 
  • The hearing featured the CEOs of Robinhood, Citadel, Reddit, and Melvin Capital. 
  • Robinhood CEO Vlad Tenev was the hearing’s main target, and it was plagued with technical issues.
  • Visit the Business section of Insider for more stories.

Just weeks after the GameStop stock bubble popped, the US House of Representatives Financial Services Committee held an hours-long hearing examining what happened.

Though that hearing featured a variety of chief executives, from Reddit CEO Steve Huffman to Citadel CEO Ken Griffin, and even featured one popular financial influencer, the main target of questioning was Robinhood CEO Vlad Tenev.

Questions to Robinhood focused on the app’s decision to halt trading and how it “gamifies” stock trading

With over 50 members of the House of Representatives participating, the lines of questioning varied wildly. Some representatives asked Tenev about Robinhood’s choice to halt trading of GameStop and other such “meme stocks” on January 28, while others asked him about Alex Kearns, a 20-year-old Robinhood user who thought he had lost $730,000 on the app. Kearns died by suicide in June 2020. 

“I’m sorry to the family of Mr. Kearns for your loss,” Tenev said.

Kearns repeatedly contacted Robinhood’s help desk, but didn’t receive a response before he died. During his allotted time, Rep. Sean Casten played Tenev the recording that users hear when they call Robinhood for help.

He also criticized Robinhood for the “innate tension” at the heart of its business model, which he said is split “between democratizing finance, which is a noble calling, and being a conduit to feed fish to sharks.” 

Lawmakers primarily focused on Tenev due to the stock trading app’s critical role in the explosion of GameStop’s stock value: Between January 20 and January 26, GameStop’s stock value leaped from just over $35 per share to north of $140 per share. By January 27, it hit new highs of over $325 per share – an over 8,000% increase from just a few months ago.

The next morning, Robinhood halted trades of the stock because it ran out of money to cover the upfront cost of its customers stock purchases. The company even had to dilute its own value in order to quickly raise capital – a $3.4 billion investment from several different firms was announced in early February.

Tenev repeatedly told lawmakers the same story he’s told previously: Robinhood was forced to temporarily halt trading of GameStop and several other stocks because the National Securities Clearing Corporation demanded $3 billion to cover volatile trades.

And he refuted claims that the decision was driven by the hedge funds which had taken out short positions on GameStop stock, as did Melvin Capital Management CEO Gabe Plotkin who also joined the hearing.

Another notable criticism repeatedly leveled at Robinhood: Gamification. The app notoriously features audio and visual elements that cheer on user actions. “We didn’t encourage anyone to tap on anything,” Tenev said in one such exchange. “We wanted to give our customers delightful features so they know we’re listening to them and we care about them.”

Ken Griffin, Citadel (Congressional hearing, February 18)
Citadel CEO Ken Griffin.

Technical difficulties persisted throughout the nearly 5-hour hearing

From the very beginning of the hearing, technical issues plagued the video conference. Hot mics were frequent, and a few major sound issues caused pauses.

As the hearing – which kicked off at noon – pushed on, exchanges between legislators and interviewees got more and more brief.  

Legislators frequently cut in mid-answer with “I’ll reclaim my time” in an effort to squeeze another question in. And an exchange between Rep. Rashida Tlaib and Citadel CEO Ken Griffin just after the five-hour mark got particularly contentious, as he attempted to talk over her. “Let me finish my answer. I think it’s important,” he said. “No, no,” Tlaib responded. 

The few exchanges with Keith “Roaring Kitty” Gill, a stock trader who made a name for himself as a YouTuber, were largely focused on what he specializes in: stock advice. Gill said he would still buy GameStop stock at its current value, and that he initially bought in months ago because it was “undervalued.” Also of note: Gill’s opening statement included at least one notable meme reference.

Ultimately, there were no huge revelations about the GameStop stock bubble or the major players involved in it from Thursday’s hearing. It’s the first of several such hearings that the financial services committee plans in the wake of the bubble’s popping.

You can watch the full hearing below:

Got a tip? Contact Business Insider senior correspondent Ben Gilbert via email (bgilbert@businessinsider.com), or Twitter DM (@realbengilbert). We can keep sources anonymous. Use a non-work device to reach out. PR pitches by email only, please.

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Robinhood pays $65 million to settle SEC probe over misleading communications with customers

robinhood
  • Robinhood agreed to pay $65 million to settle with the Securities and Exchange Commission over charges that the brokerage misled clients on its revenue from trades and the quality of its service.
  • The SEC alleged Robinhood made “misleading statements and omissions” about how it made money with market-makers. Robinhood, like other brokerages, sells its orders to high-speed trading firms for execution.
  • While Robinhood marketed its trades as commission-free and matching or exceeding its peers in quality, the brokerage provided inferior trade prices that cost clients tens of millions of dollars, according to a Thursday SEC press release.
  • The settlement relates to practices “that do not reflect Robinhood today,” Dan Gallagher, the brokerage’s chief legal officer, said in an emailed statement.
  • Visit the Business Insider homepage for more stories.

Robinhood agreed to pay $65 million to settle Securities and Exchange Commission charges that allege the discount brokerage misled customers on the quality of its trading service.

The regulator argued Robinhood made “misleading statements and omissions” about how it made money with high-speed trading companies, according to a Thursday press release. Like other brokerages, Robinhood sells its orders to trading firms for execution in a process known as “payment for order flow”.

The SEC’s order alleges the brokerage routinely provided inferior trade prices, even as Robinhood marketed its trades as commission-free and executed with quality that matched or beat peers. The second-rate prices have cost clients a total of $34.1 million even after accounting for the lack of commission fees, according to the SEC. 

Read more: Buy these 26 stocks poised to surge as China starts to dominate the electric-vehicle landscape, UBS says

“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” Stephanie Avakian, director of the SEC’s Enforcement Division, said in a statement. “Brokerage firms cannot mislead customers about order execution quality.”

The settlement ends a probe that examined Robinhood’s omission of order-flow revenue on its website from 2015 to 2018. Robinhood resolved the probe without admitting or denying the SEC’s charges.

The settlement relates to practices “that do not reflect Robinhood today,” Dan Gallagher, the brokerage’s chief legal officer, said in an emailed 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,” he added.

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