Robinhood Fined $1.25 Million by Finra After Broker Violations

The provider of commission-free trading agrees to appointment of independent consultant to review execution systems and procedures.
Author:
Updated:
Original:

Robinhood Financial was fined $1.25 million for what the Financial Industry Regulatory Authority said were "execution violations" tied to customer equity orders and related supervisory failures.

Robinhood settled the matter without admitting or denying wrongdoing.

As part of the settlement, the provider of commission-free trading, including fractional shares, agreed to the appointment of an independent consultant to review the firm's execution systems and procedures.

Finra Rule 5310 requires firms to "use reasonable diligence" to ascertain the best market for a buy or sell order to ensure the best possible price to the customer under the prevailing market conditions.

Robinhood "did not reasonably consider the Rule 5310 execution quality factors (such as price improvement) that the firm could obtain from alternative markets," Finra said in a statement.

“In addition, Robinhood’s supervisory system was not reasonably designed to achieve compliance with its best-execution obligations,” the agency’s statement said.

A spokesman for Robinhood said that the "facts on which the settlement is based do not reflect our practices or procedures today. 

"The agreement relates to a historic issue during the 2016-2017 time frame involving consideration of alternative markets for order routing, internal written procedures, and the need for additional review of certain order types. 

"Over the last two years, we have significantly improved our execution monitoring tools and processes relating to best execution, and we have established relationships with additional market makers.”

Robinhood, based in Menlo Park, Calif. is backed by a number of major venture capital firms.

Finra, overseen by the Securities and Exchange Commission, regulates brokerage firms that do business with the public in the U.S.