> As the SEC’s order finds, one of Robinhood’s selling points to customers was that trading was “commission free,” but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices. Despite this, according to the SEC’s order, Robinhood falsely claimed in a website FAQ between October 2018 and June 2019 that its execution quality matched or beat that of its competitors.
Reading through the comments had me confused, but it really boils down to a misleading FAQ page. All of which is pretty damn funny because of how innocuous I view FAQ pages to be.
This is a very tame reading of the mistake. Telling customers that their stock orders would be executed at prices matching other firms, when in fact Robinhood was executing those orders at inferior prices -- that's a big misrepresentation. You're paying extra for something while being told that you're not.
I don’t get it. If you sell stocks at the market price it wouldn’t be the market price but something cheaper that RB would buy and then sell at the real market price?
Not Robinhood on the other end of the transaction, but yes.
If you and someone else both mashed SELL at the exact same instant, they'd get $48 for their stock and you'd get $47.99 and your confirmation screens would both say "we sold your stock at the highest price we could find".
In exchange for sending their customers to a place where they'd only get $47.99 instead of $48, Robinhood received direct cash payments.
That's not what happened here. Everyone gets cash rebates for directing orders. Robinhood just dialed those rebates in higher than other firms, while claiming not to have done that.
Retail orders generally trade with against market makers off-exchange, between the quoted market price. If the quote is Buy @ $1.00 x Sell @ $1.01, a retail order would be able to buy at a price like $1.0099.
That $.0001 savings is known as "price improvement". Separately, the market maker pays a negotiated ahead of time rate to Robinhood for sourcing the order, aka "payment for order flow".
A whole lot of financial/securities regulation revolves around messaging. You are allowed to do many things as long as you are transparent about them, conversely you have to be extremely careful about saying anything lest it be interpreted to mean something unintended.
Reading through the comments had me confused, but it really boils down to a misleading FAQ page. All of which is pretty damn funny because of how innocuous I view FAQ pages to be.