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Robinhood agreed to pay a $65m civil penalty, without admitting or denying SEC’s findings. The millennial-favored trading app is best known for pioneering the “commission-free trading.” Robinhood, and the rest of the online brokerage industry, rely on what’s known as payment for order flow as their profit engine in lieu of commissions. However, the SEC order found that Robinhood provided inferior trade prices that cost customers $34.1m, even after considering the savings from not paying a commission.
“Between 2015 and late 2018, Robinhood made misleading statements and omissions in customer communications, including in FAQ pages on its website, about its largest revenue source when describing how it made money — namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as ‘payment for order flow,’” the SEC said.
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