Securities and Exchange Commission watchdog chief Gary Gensler told Barron’s in an article published on Monday that banning so-called payment for order flow is under consideration, sending Robinhood’s stock down as much as 8%. So around 80% of Robinhood’s revenue in the second quarter came from the practice of brokerages sending user orders to market makers in exchange for payments, known as payment for order flow, and a similar practice for its cryptocurrency unit, called transaction rebates. Trades are free, but the firm has to make money somehow. Still, some of what made Robinhood great for new users has worried regulators. For a business dominated by white, aging investors, it’s an important aspect that not only appeals to socially conscious companies it is enough to tempt those companies to recreate what Robinhood has done. African-American investors represented 9% of Robinhood’s customer base, compared with just 3% at incumbent firms, and Hispanic users made up 16%, compared with 7% elsewhere, according to filings ahead of the company’s initial public offering in July. It now surpasses Schwab’s market share based on online brokerage revenue last year.Ĭreating new demand, an important aspect for any upstart tech business, helped. But Robinhood has attracted more than 21 million monthly active users, doubling in a year. Until Robinhood burst onto the scene in 2019, E*Trade and Schwab made up more than 40% of the total industry’s online revenue, according to IBISWorld. The company co-founded by Tenev filled a need in the centuries-old trading business. The backlash may be enough to leave the disruptor vulnerable to some disruption of its own. That’s come in the form of mountains of lawsuits, regulatory scrutiny, and distracting Washington gadflies that promise to reshape Robinhood. But the online trading platform run by Vlad Tenev has upended that, and like any good disruptor, made its fair share of enemies along the way. WASHINGTON, Aug 31 (Reuters Breakingviews) - Before Robinhood Markets (HOOD.O) came along, the retail investor complex controlled by firms like Fidelity, Wellington, Charles Schwab (SCHW.N) and E*Trade was sitting pretty.
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