Retail broker Robinhood Financial has not reported some of the trades it took for clients last year to a public feed, according to regulatory data analyzed by Reuters and sources familiar with the matter. Stocks, called fractions, are offered by many brokers. They let investors buy shares instead of all stocks, so instead of spending more than $ 3,000 on Amazon.com Inc stock, investors can only buy $ 1.
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Brokers are required to report all their trades to the Trading Execution Center (TRF) in accordance with the Financial Industry Regulatory Authority (FINRA) and US Securities and Exchange Commission rules. FINRA̵7;s enforcement has fined other brokers, including Merrill Lynch and Deutsche Bank AG’s U.S. securities division, for past reporting and regulatory violations.
Robinhood launched its fraction-sharing service in December 2019, according to its website, but began publicly reporting executions in the week of January 25, 2021, FINRA data related to over-the-counter transactions. The preceding information does not show any trades reported by Robinhood.
Robinhood’s lack of reporting to commercial venues was confirmed by a person familiar with the company, who asked to remain anonymous to discuss the matter not made public.
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Reuters was unable to determine the number of trades Robinhood failed to report.As of Dec. 31, user Robinhood holds $ 802.5 million of shares it acquired through a fractional share scheme, the brokerage said in a regulatory filing. Bulk orders may be processed by a wholesaler.
A Robinhood spokeswoman declined to comment on the reporting issues, but said the company, which had 13 million customers as of November, was operating exclusively. “A very small percentage of orders for a fraction of their own inventory.”
A spokesman for FINRA, a brokerage, declined to comment.
When stocks are traded, anyone can view their activity. But when stocks are traded over the counter like Robinhood, investors rely on brokers to report their trades to the TRF. Information to help determine stock prices When some trades are not reported to the public, it will reduce the amount of information available for market participants and can create a classy playing field, FINRA said.
However, some experts say that while the omission is serious enough to warrant a fine to prevent it from happening again. But it was not a big lapse. That’s because the number of unreported trades is a small fraction of the overall trade, these people said.
“They deserve a parking pass? Should it hurt enough not to do it again?” Said James Angel, a professor of finance at Georgetown University who specializes in market structure when Reuters presented him with the information. Should it be so heavy that they stop doing business? “
Reporting ended when the company, which last month filed for its first public offering, which a source told Reuters valued at about $ 30 billion, is expanding rapidly and has a new retailer. A large number of entering the market
FINRA rules state that all trades must be reported, including less-than-share trades, in the name of transparency, as market participants may base their decisions in understanding, not just prices. But who is trading what and when?
Unlike full stock orders, which Robinhood sent en-masse to wholesale brokers to process, Robinhood said the Robinhood Securities clearinghouse brokerage group performed fractional trades from its own accounts, which FINRA was authorized to. do
Robinhood processed approximately 1.86 million Level One shares during the week of March 15 and about 3.51 million Level Two shares in the week of March 1, the latest FINRA data.
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The first level includes stocks in the S&P 500 Index, Russell 1000 Index and traded products, while the second includes smaller companies.
(Reporting by John McCrank; Edited by Megan Davies and Paritosh Bansal)