4 ms·

Basically, if you want to buy AAPL at $100 and as your broker, I take that info and share it with someone else, such as an HFT, they will quickly (milliseconds/

Basically, if you want to buy AAPL at $100 and as your broker, I take that info and share it with someone else, such as an HFT, they will quickly (milliseconds/nanoseconds) buy AAPL and sell you at a higher price. So, while you expected to pay $100, you ended up paying $100.10. Now that doesn't seem a lot to you but times the difference (10 cents) by volume and number of Robinhood customers placing orders and it can add up to be a lot.

saddlerustle 6y ago
That's not true. A $100 buy order will only ever execute at $100.
- dangus 6y ago
  The default trade option on Robinhood isn’t a dollar value buy order. It’s a number of shares order at the market rate.
- mtcoope 6y ago
  Not a market order which majority of people on Robinhood are using market orders since they are the default. Most don't even know what a limit order is I'm guessing.
- Kranar 6y ago
  This is wrong on several levels. First of all limit orders place a limit on the worst case price that can be executed but SEC rules impose a duty to execute orders at the best price. If there's a $100 buy order and the best price is 99 dollars, then there is a duty to fill the order at 99 dollars. Second, the allegation made by the SEC, for which they most likely have very strong evidence, is that Robinhood didn't fulfill its duty to execute orders at the best price to the tune of some 30 million dollars.
treis 6y ago
This is front running and illegal.
- Kranar 6y ago
  Yes, exactly. That's what this submission and charge by the SEC is all about. Is everyone just forgetting the entire purpose of this submission is that Robinhood used pay for order flow to facilitate front running?
  - treis 6y ago
    All the press release says is: >Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ That could mean pretty much anything.
    - Kranar 6y ago
      I disagree that your sentence fragment is all the press release says. I believe the press release says a lot more, such as Robinhood making substantial amounts of money from pay for order flow and Robinhood executing orders at prices that are not only worse than what is available on the market, but also worse than competing brokers, and this in spite of the fact that Robinhood advertises this to the contrary. These facts taken together can not be used to "mean pretty much anything". These facts, along with the additional fact that the SEC is charging Robinhood of engaging in illegal activity, strongly suggest illegal activity involving pay for order flow that resulted in worse price execution to the customer. If you think that means "pretty much anything" then we can simply agree to disagree on this matter.
      - pgwhalen 6y ago
        > Robinhood executing orders at prices that are not only worse than what is available on the market, but also worse than competing brokers This sentence doesn't make much sense given how PFOF works. It would make sense if it were flipped around and said "not only worse than competing brokers, but worse than what is available on the market" because brokers typically provide retail traders better than what is available on the market (assuming: public exchanges = market). I agree with GP that the press release suggests that Robinhood was not giving worse prices than NBBO, but was instead giving prices better than NBBO (like every broker), but intentionally not _as good_ prices as other brokers, in exchange for greater PFOF. I am not fundamentally against PFOF, but the "honesty" required on the part of the broker in situations like this has always troubled me, and it's interesting to see it rear its head. I think an ideal market structure might keep PFOF, but in a more public way, such that payments were more transparent/competitive in real time, and not something arbitrarily negotiated between brokers and wholesalers.
kasey_junk 6y ago
The buy ahead of you scenario described in this comment is not what the allegations are in the filing (and wouldn’t work in practice because of the way exchanges work). What is actually being alleged here is that Robinhood did not fulfill their obligation to secure the best price. There is a literal system in the US equities space that says what the best price for a symbol is across the exchanges. The internalizer can arbitrage this system due to physics & CAP there on but they can also do it in more prosaic ways, by having previous inventory that is priced better or by simply taking the spread between an internal netting (thus internalizing it). In any case it’s Robinhood who holds the fiduciary duty not the internalizer so if they aren’t getting appropriate execution they need to change their contracts with the internalizers, switch to a different set or send directly to lit exchanges (which destroys their business model & likely gives worse execution than a more fair internalization setup would).
smabie 6y ago
No that's not how it works at all. Source: work at a hft market making firm
- _cs2017_ 6y ago
  If you have a few minutes, would you mind giving some technical overview of what's going on?

saddlerustle 6y ago

That's not true. A $100 buy order will only ever execute at $100.

dangus 6y ago
The default trade option on Robinhood isn’t a dollar value buy order. It’s a number of shares order at the market rate.
mtcoope 6y ago
Not a market order which majority of people on Robinhood are using market orders since they are the default. Most don't even know what a limit order is I'm guessing.
Kranar 6y ago
This is wrong on several levels. First of all limit orders place a limit on the worst case price that can be executed but SEC rules impose a duty to execute orders at the best price. If there's a $100 buy order and the best price is 99 dollars, then there is a duty to fill the order at 99 dollars. Second, the allegation made by the SEC, for which they most likely have very strong evidence, is that Robinhood didn't fulfill its duty to execute orders at the best price to the tune of some 30 million dollars.

treis 6y ago

This is front running and illegal.

Kranar 6y ago
Yes, exactly. That's what this submission and charge by the SEC is all about. Is everyone just forgetting the entire purpose of this submission is that Robinhood used pay for order flow to facilitate front running?
- treis 6y ago
  All the press release says is: >Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ That could mean pretty much anything.
  - Kranar 6y ago
    I disagree that your sentence fragment is all the press release says. I believe the press release says a lot more, such as Robinhood making substantial amounts of money from pay for order flow and Robinhood executing orders at prices that are not only worse than what is available on the market, but also worse than competing brokers, and this in spite of the fact that Robinhood advertises this to the contrary. These facts taken together can not be used to "mean pretty much anything". These facts, along with the additional fact that the SEC is charging Robinhood of engaging in illegal activity, strongly suggest illegal activity involving pay for order flow that resulted in worse price execution to the customer. If you think that means "pretty much anything" then we can simply agree to disagree on this matter.
    - pgwhalen 6y ago
      > Robinhood executing orders at prices that are not only worse than what is available on the market, but also worse than competing brokers This sentence doesn't make much sense given how PFOF works. It would make sense if it were flipped around and said "not only worse than competing brokers, but worse than what is available on the market" because brokers typically provide retail traders better than what is available on the market (assuming: public exchanges = market). I agree with GP that the press release suggests that Robinhood was not giving worse prices than NBBO, but was instead giving prices better than NBBO (like every broker), but intentionally not _as good_ prices as other brokers, in exchange for greater PFOF. I am not fundamentally against PFOF, but the "honesty" required on the part of the broker in situations like this has always troubled me, and it's interesting to see it rear its head. I think an ideal market structure might keep PFOF, but in a more public way, such that payments were more transparent/competitive in real time, and not something arbitrarily negotiated between brokers and wholesalers.

kasey_junk 6y ago

The buy ahead of you scenario described in this comment is not what the allegations are in the filing (and wouldn’t work in practice because of the way exchanges work). What is actually being alleged here is that Robinhood did not fulfill their obligation to secure the best price. There is a literal system in the US equities space that says what the best price for a symbol is across the exchanges. The internalizer can arbitrage this system due to physics & CAP there on but they can also do it in more prosaic ways, by having previous inventory that is priced better or by simply taking the spread between an internal netting (thus internalizing it). In any case it’s Robinhood who holds the fiduciary duty not the internalizer so if they aren’t getting appropriate execution they need to change their contracts with the internalizers, switch to a different set or send directly to lit exchanges (which destroys their business model & likely gives worse execution than a more fair internalization setup would).

smabie 6y ago

No that's not how it works at all. Source: work at a hft market making firm

_cs2017_ 6y ago
If you have a few minutes, would you mind giving some technical overview of what's going on?