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FINRA Fines Robinhood Financial, LLC $1.25 Million for Best Execution Violations

FINRA announced today, that it has fined online broker, Robinhood Financial, LLC $1.25 million for violations relating to its best execution of customer equity orders and related supervisory failures.  Robinhood Financial provides online trading for retail investors and offers customers commission-free trading when using the platform’s online mobile trading application or website to submit orders to trade in U.S.  During the investigation period from October 1, 2016 through November 9, 2017, Robinhood allegedly, routed its customers’ non-directed equity orders to four broker-dealers for execution.  Robinhood and the broker dealers engaged in an arrangement known as “payment for order flow.”   This means that although Robinhood provided commission-free trading to its customers, it nonetheless received compensation for that trading through its payment for order flow model.  

FINRA found that for more than a year, Robinhood failed to exercise reasonable diligence to ascertain whether these four broker-dealers provided the best market for the subject securities to ensure its customers received the best execution quality from these as compared to other execution venues.  Additionally, Robinhood did not systematically review certain order types, and it failed to establish and maintain a supervisory system, including written supervisory procedures, reasonable designed to achieve compliance with its best execution obligations.  

According to Jessica Hopper, Senior Vice President and Acting Head of FINRA’s Department of Enforcement, “Best execution of customer orders is a key investor protection requirement”, “FINRA member firms must exercise reasonable diligence in performing regular and rigorous reviews to achieve best execution for their customers.”  Robinhood, which has been a FINRA member since Oct. 2013 and serves around 10 million people.  In settling this matter, Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.   The company agreed to pay the fine and hire an independent consultant to conduct a comprehensive review of its systems and procedures.