Seeking Alpha published an eyebrow-raising report about the cryptocurrency trading platform on the 10th of September where it alleged that Robinhood “takes from the millennial and gives to the high-frequency trader” and that “high-frequency trading firms are paying Robinhood over 10 times as much as they pay to other discount brokerages for the same volume”. It claims that Robinhood does this by permitting payments for order flow and selling off their order data for an alleged ten times over in comparison to the other brokers that also conduct such practices.
Termed as ‘best execution, licensed brokers are required to conduct the orders of their customers at the most suitable price overall regional and national stock exchange. Robinhood responded to the allegation put forth by Seeking Alpha by stating, “Like the rest of the industry, (Robinhood) participates in rebate programs which help customers get additional price improvement for their orders by creating competition amongst the exchanges and liquidity providers who fill the orders, often resulting in superior execution quality. Any rebates Robinhood receives do not adversely impact this best execution obligation.”
Robinhood also replied to the statement of being accused of selling customers orders for over ten times as much as other brokers by mentioning that, “Unlike many other brokerages, (Robinhood) has established the same payment rate (listed in SEC Rule 606 disclosure) with its leading execution venues. This eliminates any incentive to direct orders to a certain execution venue. Robinhood algorithmically routes orders to a variety of different execution venues based on which is most likely to provide the greatest execution quality and price improvement on that order in addition to the NBBO. No other factors impact where customer orders are routed. Robinhood is committed to providing the best possible execution quality to its customers regardless of whether they place an order of a single share or one with more than 10,000 shares”.
Robinhood also chose to respond to claims of having sold personal identifiable data by denying the claims completely and stated that it cares deeply about the privacy and security of its customers and that it has no plans of ever selling its customers information.