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Robinhood set aside millions for possible FINRA violations

On Behalf of | Mar 15, 2021 | FINRA |

Pennsylvanians who trade with Robinhood — or people thinking about investing in the company once it goes public — should read up on its latest revelation. According to reports, the company has set aside over $25 million to settle with FINRA.

What is FINRA?

FINRA stands for Financial Industry Regulatory Authority. Despite its official-sounding name, FINRA is not a government entity. Instead, it’s a private American corporation that serves as the main self-regulatory body for brokerage firms and financial exchanges.

The U.S. Securities and Exchange Commission (SEC) is the governmental regulator with authority over FINRA and the entire securities market.

What is Robinhood?

Launched in 2015, Robinhood Markets, Inc. — aka Robinhood — is a commission-free trading platform that users access from phones, computers and tablets. A startup darling of the twenty-teens, Robinhood has three main revenue streams:

  • Interest derived from users’ cash balances
  • Order information sales to high-frequency traders
  • Margin lending

Robinhood vs. FINRA

In March, Robinhood revealed in a securities filing that it has set aside $26.6 million as a potential FINRA settlement fee. The trading platform played a key role in the GameStop stock run, which pitted Main Street traders against Wall Street hedge funds. Controversially, Robinhood suspended trading of the retail stock at the height of activity, an arguable violation of FINRA rules.

The fallout has resulted in 46 class-action claims against the company in addition to inquiries from the SEC, FINRA, a California U.S. district court and several state attorney generals.

The tragic story of a Robinhood user whose death is linked to the app’s reporting functionality has also dented the company’s reputation in recent months.

Despite Robinhood’s legal and PR setbacks, reports persist that the company could file a confidential IPO filing as early as March.


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