Please, I need the Robinhood S-1, my family is starving
Source: The Verge added 08th Apr 2021I love it when companies go public. I am never more excited than when I get to read a mandatory S-1 filing for the first time. Anything could be in there! Maybe the company has wildly more people using its products than I would have guessed. Maybe the company is surprisingly profitable. Maybe the company is WeWork!
Anyway, there is a new Robinhood regulatory oopsie in the news, and it’s made me even more eager to find out what’s lurking in that document. If I do not get the Robinhood S-1 soon, I will die. The company has confidentially filed to go public, but what fun is confidentiality? There might be some juicy shit in there!
Here’s the shape of the new thing: Robinhood allows customers to trade fractions of a share — something that makes it easier for ordinary investors to get into high-priced stocks. The problem, however, is that Robinhood didn’t report these trades to a public data feed, according to Reuters. This reporting is required by both the Financial Industry Regulatory Authority and the Securities and Exchange Commission. Though Robinhood launched this service in December 2019, nothing was publicly reported until January 2021, Reuters says.
Other brokerages have been fined for this in the past because the missing information makes it harder to price stocks. It’s not the biggest violation — an expert Reuters spoke to suggested that Robinhood deserved “a parking ticket” for it — but it suggests something the other Robinhood screw-ups also hint at: start-up sloppiness.
Robinhood is where the “move fast and break things” tech ethos runs straight into the “I will kill and eat you, but in a highly regulated way” Wall Street ethos. The most obvious example is the service outages. Remember in January, when Robinhood pissed off the entire internet by limiting trades on GameStop? The company hadn’t planned for an event of the GameStop scale and coming up short for clearinghouse requirements. There were also three huge outages in March 2020, which Robinhood has said were due to “stress on our infrastructure”; then, as with GameStop, it simply hadn’t planned for an outlier event. Some real fail whale stuff!
But the other interesting bit is the regulated part of Wall Street. Robinhood has run into trouble there, too. For instance, the company was fined $65 million by the SEC for deceiving its customers about “payment for order flow” (PFOF), a practice that lets market makers bundle trades. (It is controversial because, theoretically, it could let banks illegally front-run trades; in practice, it doesn’t seem like this would be a very good idea because the price on PFOF trades is better than what’s available on the market.) Also, there’s the $1.25 million settlement on claims that Robinhood didn’t work hard enough to get the best price for its users. This is to say nothing of 2,000 hacked accounts.
The new regulatory thing is small potatoes by these standards, but nonetheless illustrative. It’s easier to get away with being sloppy if you’re, like, a social network and there’s no specific government or industry watchdog that’s tasked with keeping you in line. Sure, you might get bad press and a congressional scolding, but that’s about the end of it. This is part of what makes fintech so interesting: if you’re focused on making a pretty app and to hell with the rest of it, you are in trouble.
The S-1 is the moment of truth. Right now, it’s hard to tell where Robinhood stands. The flush of press earlier this year led to a bunch of new users. Payment for order flow means Robinhood gets paid on every trade, whether the market is going up or down. On the other hand, this company has a habit of falling afoul of regulators. (There is still an outstanding complaint from Massachusetts.)
Anyway, if you have that S-1 filing, do me a favor and send it my way. I need it. My family is starving, and we need gossip to survive.
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