Robinhood fined by Vermont state regulator over trading outages

abdelaziz Fathi

Robinhood will pay roughly $1.1 million in penalties for its systemwide outages and options trading practices, the Vermont Department of Financial Regulation said.

The settlement regards Robinhood’s multiple trading outages in the spring of 2020, lack of due diligence before approving customers to place options trades and providing misleading information to customers about margin trading.

Robinhood Markets was ordered to pay a $640,000 regulatory fine. In addition, it will funnel $590,000 to Vermont’s General Fund and $50,000 to the Education Fund.

A group of Robinhood customers were pushing for a class-action lawsuit to sue the stock-buying app over the technical failures Robinhood experienced in March of 2020. The plaintiffs were actively building a case against Robinhood for their negligence.

Robinhood allegedly breached its contracts and fiduciary obligations to customers, flouted regulatory requirements and acted in a reckless, profit-driven manner. This had left traders unable to move money while stock markets surged on March 2, 2020.

Technical issues marred the commission-free investing app on many occasions last year, unnerving investors trying to access their accounts during the market rally.

At the time, Robinhood had customers with more than 10 million accounts, and a fair number of them were frustrated trying to figure out how they fared during a bullish trading session. Clients have complained about not having access to their accounts and having long wait times for customer service.

Robinhood’s CEO blamed the shutdown on volatile market conditions, record trading volume, and record new account requests, which caused stress on the company’s infrastructure.

Robinhood makes it harder for options traders to qualify

“That was an unacceptable thing to have the only way people can access their money be your platform and then when a lot of customers go to your account to access their money and they can’t access it and their money was losing value extraordinarily during those days of trading losses,” said DFR Commissioner Mike Pieciak.

The state regulator also noticed that at least 40 customers in Vermont complained to the watchdog or Robinhood form a series of disruptions on its brokerage app. The Vermont Department of Financial Regulation added that the no-fee app’s automated process for approving investor applications wasn’t thorough enough to choose which customers should have access to risky options and margin trading features.

Separately, Robinhood is facing multiple investigations into repeated outages of its trading platform, as well as failure to provide a swift resolution resulted in some investors losing money after being unable to access their accounts.

The probes were also extended to brokerage accounts that were compromised by an attack that gave hackers the ability to take over users’ trades and funds in 2020.

Robinhood also made multiple changes to its options trading products, part of the improvements the app promised to do after one of its customers died by suicide thinking he incurred losses of over $700,000. The app has introduced new measures that make it harder for options traders to qualify to support sophisticated products on its platform.

Read this next

Institutional FX

FXSpotStream volumes hit 14-month high in November

FXSpotStream’s trading venue, the aggregator service of LiquidityMatch LLC, reported its operational metrics for November 2023, which moved higher on a monthly basis.

Digital Assets

Circle denies ties with Palestinian groups, TRON founder

Stablecoin issuer Circle has denied allegations that it facilitates funding for terrorist organizations.

Retail FX

CySEC hits operator of Titanedge, TradeEU with €90,000 fine

The Cyprus Securities and Exchange Commission (CySEC) announced that it has imposed a fine of €90,000 on Titanedge Securities Ltd due to shortcomings in their regulatory obligations.

Institutional FX

Cboe FX volumes retreats slightly in November 2023

Cboe’s institutional spot FX platform today announced its trading volume for the month ending November 2023, which took a step back after a strong rebound in October.

Institutional FX

Alpha Group seals Cobase majority acquisition

Foreign exchange service provider Alpha Group International plc (AIM: ALPH) has finalized its acquisition of Financial Transaction Services, operating as Cobase.

Digital Assets

TMNG Tokens Successfully Listed on MEXC Crypto Exchange

TMN Global proudly announces the successful listing of its native TMNG token on the MEXC crypto exchange, effective December 1st, 2023. This strategic partnership marks a significant milestone for TMN Global in the crypto space.

Institutional FX

Marex completes acquisition of TD Cowen’s PB business

London-headquartered commodities broker Marex has completed the acquisition of TD Cowen’s prime brokerage and outsourced trading business, which will be integrated into Marex’s capital market division. This division was established following the acquisition of ED&F Man Capital Markets in 2022.

Digital Assets

Talos introduces decentralized liquidity and onchain settlement with Uniswap and Fireblocks

“At the cornerstone of the DeFi ecosystem, Uniswap has the breadth of assets and depth of liquidity that institutional traders need. And to have this partnership powered by Fireblocks, a digital assets infrastructure provider trusted by some of the most renowned institutions, is very fitting.”

Digital Assets

FINMA-regulated crypto bank SEBA Bank rebrands to AMINA

“As we look forward to 2024, our ambition is to accelerate the growth of our strategic hubs in Switzerland, Hong Kong, and Abu Dhabi, and to continue our global expansion, building on all the successes we have laid down over the past years.”

<