Robinhood publicly files for IPO even as questions arise about its practices

Karthik Subramanian

Robinhood, the stock trading platform that is loved by Gen Z, has publicly filed a registration statement with the SEC in the US even as it gets hit by huge fines from various regulatory authorities.

Marketing FX as an Alternative to Volatile Stocks

The move happens when the stock trading app continues to perform strongly and the valuations of the company continue to soar this year. It has seen a huge pick up in revenues this year and this is expected to lead to a valuation of over $40 billion. But all this depends on how the large investors view the app as a long-term bet especially due to the bad press that it has been getting recently.

Just a few days back, it was reported that it had been fined $70 million by the Financial Industry Regulatory Authority (FINRA) for giving its customers misleading information, for suffering system outages in March 2020, and approving thousands of accounts for options trading even though they were not ‘appropriate’. This is the biggest ever fine imposed by the FINRA on any company and it brings into question the validity of the practices that Robinhood follows and how it could affect retail traders in the long run.

This was not the first instance and neither is it expected to be the last. Last December, it was fined $65 million by the SEC for misleading customers about payment for order flow practices, and this misleading information is suspected to have caused a loss of $34 million for its customers. It has also been strongly criticized by investors and users for restricting the trading of stocks like GameStop when the stock prices were volatile and controlled by a large group of traders. These practices were deemed unethical and supportive of a specific group of large traders rather than establishing a level playing field which the app supposedly proposes to achieve.

The draft application for listing in NASDAQ was filed in March 2021 but details on the number of shares and the expected share price were not revealed. It also proposes to allocate 35% of its shares to its own users so that the traders can buy the Robinhood shares on its own platform. The lead book-runners would be Goldman Sachs and JPMorgan. Despite all the criticism surrounding the way it handles its operations and information, it is expected to be a bumper IPO for the company as the retail traders themselves are expected to lap up the IPO shares as they rarely get a chance to get such shares for large companies under normal course.

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