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(2) is false. You can't offer "inferior prices" to customers. It's called the Order Protection Rule of RegNMS. You must price improve the customer, by law. If

(2) is false. You can't offer "inferior prices" to customers. It's called the Order Protection Rule of RegNMS. You must price improve the customer, by law. If a bid-offer is 23.01/23.02, Robinhood (but actually Citadel/Two Sigma) _must_ transact with a buy order at 23.0199 or less (the subpenny rule only applies to quotes, not actual trades). The reason Robinhood sells this order flow is because Citadel/Two Sigma would rather collect a spread of almost 1 cent (23.0199-23.01) from _you_ rather than a hedge fund, who may conceivably move the market against the market maker. They are "paying for order flow" (PFOF) - much less than 1 cent - to collect the 1 cent spread from you. Robinhood is in trouble with the SEC for a failure to disclose this relationship to customers, _not_ for having the economic arrangement to begin with.

filoleg 6y ago
(1) is pretty weak too. Yes, they had outages where 100% of stocks were unavailable for trading, which is factually true. What makes that assertion weaker is the fact that other brokerages had the same kind of outages too, and not with less frequency of occurrence either. Which is why (1) is not really a meaningful point against RH specifically.
- pessimizer 6y ago
  That other fruits are rotten does not weaken the assertion that this particular fruit is rotten. I don't think anyone is claiming that every fault that Robinhood has is unique.
  - Dylan16807 6y ago
    But it does weaken the argument of "why isn't everyone bringing this up more?" If they have a normal amount of outages, then the outages aren't brought up because that's boring.
    - mike00632 6y ago
      They don't have a normal amount of outages. They have more outages. It's a significant amount of outages. It's already been the subject of complaints previously.
  - filoleg 6y ago
    >That other fruits are rotten does not weaken the assertion that this particular fruit is rotten Services occasionally experiencing unexpected outages doesn't make them a rotten fruit. By that metric, literally every single complex online service in existence is rotten. Given how rare those outages are, and how they are all not happening at the same time across different brokerages, I wager to say it is normal with nothing nefarious going on. Unless you expect a complex online service to have zero downtime ever, which is just unrealistic.
- mike00632 6y ago
  Yeah... And other stock trading platforms also stopped users from trading GSE. So by your own bad logic the original complaint against Ribbonhood should be no big deal, right?
tonfa 6y ago
It's partially true tho, they provide inferior price than other brokers using Citadel (because their contract apparently gives them a bigger kickback than most other brokers). In practice price improvement is split between the trader and the broker right, some brokers might do 50/50 while others will be 80/20.
- alexpetralia 6y ago
  Yes this is true. It wouldn't qualify under the "best execution" standard, which is based on publicly displayed (lit) quotes. But you are right that technically you could've been price improved slightly better had your broker signed a more favorable agreement with a market maker (and then passed it onto you). This would really venture into business economics though and is not related to regulation/legality.
  - alexpetralia 6y ago
    If anyone stumbles across this, the above statement is false. (I can no longer edit it.) Please check this sibling comment [0] to see the correction here. Apologies. [0] https://news.ycombinator.com/item?id=25966361 https://news.ycombinator.com/item?id=25966361
Kranar 6y ago
To say that Robinhood wasn't fined for offering its clients inferior prices directly contradicts the SEC's own statement which you can read here: https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321 "The order finds that Robinhood provided inferior trade prices that in aggregate deprived customers of $34.1 million even after taking into account the savings from not paying a commission." What you are referring to is the fact that Robinhood can't offer a worse price than the NBBO, but the NBBO is not the best available price, there are also dark pools and brokers can match orders against their own clients. Robinhood, like all brokers, has a fiduciary duty to its customers and as such is required to do what it can to always offer the best price to its clients instead of simply offering the NBBO, whose price serves as a worst case scenario when all other options have been exhausted. Robinhood not only failed to do that, they failed to do it while claiming in marketing materials that their execution is better than their competitors (it's not).
- alexpetralia 6y ago
  I apologize, it looks like you're absolutely correct. I can no longer edit the parent comment, so I hope people read your response. I also found more evidence your position on FINRA here (pdf): https://www.finra.org/sites/default/files/NoticeDocument/p003889.pdf https://www.finra.org/sites/default/files/NoticeDocument/p00... It reads: > The SEC has stated that “routing order flow for automated execution, or internally executing order flow on an auto- mated basis, at the best bid or offer quotation, would not necessarily satisfy a broker-dealer’s duty of best execution for small orders in listed and OTC securities.” The reasoning behind this view is that prices better than the NBBO may be readily accessible to the member."

filoleg 6y ago

(1) is pretty weak too. Yes, they had outages where 100% of stocks were unavailable for trading, which is factually true. What makes that assertion weaker is the fact that other brokerages had the same kind of outages too, and not with less frequency of occurrence either. Which is why (1) is not really a meaningful point against RH specifically.

pessimizer 6y ago
That other fruits are rotten does not weaken the assertion that this particular fruit is rotten. I don't think anyone is claiming that every fault that Robinhood has is unique.
- Dylan16807 6y ago
  But it does weaken the argument of "why isn't everyone bringing this up more?" If they have a normal amount of outages, then the outages aren't brought up because that's boring.
  - mike00632 6y ago
    They don't have a normal amount of outages. They have more outages. It's a significant amount of outages. It's already been the subject of complaints previously.
- filoleg 6y ago
  >That other fruits are rotten does not weaken the assertion that this particular fruit is rotten Services occasionally experiencing unexpected outages doesn't make them a rotten fruit. By that metric, literally every single complex online service in existence is rotten. Given how rare those outages are, and how they are all not happening at the same time across different brokerages, I wager to say it is normal with nothing nefarious going on. Unless you expect a complex online service to have zero downtime ever, which is just unrealistic.
mike00632 6y ago
Yeah... And other stock trading platforms also stopped users from trading GSE. So by your own bad logic the original complaint against Ribbonhood should be no big deal, right?

tonfa 6y ago

It's partially true tho, they provide inferior price than other brokers using Citadel (because their contract apparently gives them a bigger kickback than most other brokers). In practice price improvement is split between the trader and the broker right, some brokers might do 50/50 while others will be 80/20.

alexpetralia 6y ago
Yes this is true. It wouldn't qualify under the "best execution" standard, which is based on publicly displayed (lit) quotes. But you are right that technically you could've been price improved slightly better had your broker signed a more favorable agreement with a market maker (and then passed it onto you). This would really venture into business economics though and is not related to regulation/legality.
- alexpetralia 6y ago
  If anyone stumbles across this, the above statement is false. (I can no longer edit it.) Please check this sibling comment [0] to see the correction here. Apologies. [0] https://news.ycombinator.com/item?id=25966361 https://news.ycombinator.com/item?id=25966361

Kranar 6y ago

To say that Robinhood wasn't fined for offering its clients inferior prices directly contradicts the SEC's own statement which you can read here: https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321 "The order finds that Robinhood provided inferior trade prices that in aggregate deprived customers of $34.1 million even after taking into account the savings from not paying a commission." What you are referring to is the fact that Robinhood can't offer a worse price than the NBBO, but the NBBO is not the best available price, there are also dark pools and brokers can match orders against their own clients. Robinhood, like all brokers, has a fiduciary duty to its customers and as such is required to do what it can to always offer the best price to its clients instead of simply offering the NBBO, whose price serves as a worst case scenario when all other options have been exhausted. Robinhood not only failed to do that, they failed to do it while claiming in marketing materials that their execution is better than their competitors (it's not).

alexpetralia 6y ago
I apologize, it looks like you're absolutely correct. I can no longer edit the parent comment, so I hope people read your response. I also found more evidence your position on FINRA here (pdf): https://www.finra.org/sites/default/files/NoticeDocument/p003889.pdf https://www.finra.org/sites/default/files/NoticeDocument/p00... It reads: > The SEC has stated that “routing order flow for automated execution, or internally executing order flow on an auto- mated basis, at the best bid or offer quotation, would not necessarily satisfy a broker-dealer’s duty of best execution for small orders in listed and OTC securities.” The reasoning behind this view is that prices better than the NBBO may be readily accessible to the member."