In this arrangement, the broker sells customer orders to market-making firms (primarily Citadel Securities in Robinhood’s case) that execute the trades. The company generates about 80 percent of its revenue from payment for order flow, which allows it to offer commission-free trading to users. Investors taking part in the class action argue that Robinhood’s business model has a built-in conflict of interest. That may challenge Robinhood’s pitch that it’s a platform for “everything that you use your money for,” as Vlad Tenev, its chief executive, told The Associated Press last month.īuilding customer trust is key to Robinhood’s expansion beyond fee-free trading into new business lines, muscling in on more established rivals’ turf and justifying its heady market capitalization. The class action could reveal more about what motivated the company’s decisions.
Robinhood said it had restricted trading in meme stocks to protect itself and customers, citing regulatory obligations to monitor and maintain capital requirements. Robinhood’s counsel did not respond to a request for comment. They accuse the company of gross negligence and violations of antitrust and securities laws. Robinhood’s curb on trading during the frenzy hurt its customers and benefited its business associates, according to investors in the class action.
Some of the issues relate to Robinhood’s actions in late January, when it abruptly limited trading for customers clamoring for meme stocks that were soaring as groups of small investors united on social media and squeezed the institutional players betting against the shares. registration document, a description of the legal proceedings pending against the company filled seven pages.
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