See what clicks on FoxBusiness.com.
Retail broker Robinhood Financial did not report a certain type of stock trade he conducted for clients last year to a public data feed, according to regulatory data analyzed by Reuters and a source familiar with the matter. So-called fractional shares are offered by many brokers. They let investors buy a share of a stock instead of the whole thing, and instead of spending more than $ 3000 on a share of Amazon.com Inc., an investor can buy just under $ 1.
GET FOX BUSINESS ON THE GO by clicking here
Brokers must report all their operations to the trading facilities (TRFs) in accordance with the rules of the Financial Industry Regulatory Authority (FINRA) and the US Securities and Exchange Commission regulations. The application of FINRA has fined other brokers, including Merrill Lynch and the US securities division of Deutsche Bank AG, for past breaches of its reporting and supervision rules.
According to its website, Robinhood launched its fractional service in December 2019, but the week of January 25, 2021, the trade executions only started reporting in public, FINRA data regarding over-the-counter transactions show. Data previously shows no transactions reported by Robinhood.
Robinhood’s lack of reporting to a trading execution facility was confirmed by a person familiar with the company who asked not to be identified to discuss a case that was not public.
ROBINHOOD, IN THE MIDDLE OF CHAOS, COLLECTS TOTAL $ 3.4 billion
Reuters could not determine how many acts Robinhood could not report. As of Dec. 31, Robinhood users owned $ 802.5 million in shares purchased through the fractional stock program, the brokers said in a regulatory submission. Many of these purchases may have been made by wholesale brokers.
A Robinhood spokesman declined to comment on the reporting issue, but said the company, which had 13 million customers as of November, only exports a ‘very small percentage of its break orders from its own stock’.
A FINRA spokesman, who runs brokers, declined to comment.
If stocks trade on stock exchanges, everyone can see the activity. But when stocks trade over the counter, as is the case with Robinhood, investors rely on brokers to report the transactions to the TRF. The information helps determine stock prices. When certain transactions are not publicly reported, it reduces the amount of information available to market participants, and can create an uneven playing field, says FINRA.
Some experts said that while the failure was sufficient to justify fines to prevent it from happening again, it was not a major setback. This is because the number of unreported transactions would be a small fraction of the total trade, these people said.
“Should they earn a parking ticket for it? Yes. Should it be painful enough that they do not do it again? Yes,” said James Angel, a professor of finance at Georgetown University who specializes in market structure. Reuters the data to him. “Should it be so overwhelming that it puts them out of action? Heck no.”
The decline in reporting came as the company, which made an initial public offering last month, which sources told Reuters it was worth about $ 30 billion, expanded rapidly, leaving legions of new retailers entering the market.
FINRA rules stipulate that all operations must be reported in the name of transparency – including trades of less than one share – as market participants can make decisions based on the understanding of not only prices, but who and what and when trading.
Unlike orders for full shares that Robinhood sends en masse to wholesale brokers to execute, Robinhood says its clearing broker, Robinhood Securities, executes fractional transactions from its own account, which is licensed by FINRA.
Robinhood traded approximately 1.86 million tiger-one shares during the week of March 15 and approximately 3.51 million tiger-two shares during the week of March 1, the latest FINRA data show.
CLICK HERE TO READ MORE ABOUT FOX BUSINESS
Tier-one securities include stocks in the S&P 500 index, the Russell 1000 index and in exchange-traded products, while group includes two smaller companies.
(Edited by John McCrank; edited by Megan Davies and Paritosh Bansal)