Robinhood Trading Software Recent Controversies

Technological advancement has made online investment a straightforward process. You can easily invest money by buying shares or stocks through mobile applications or software. Many providers are designing various software and applications that allow you to invest and trade stock with a single click or button and a simple process.

Robinhood has developed into a popular platform for beginners and experienced investors. However, this software provider has made news headlines over the recent controversies and restrictions on their trade over the last few years. These controversies have affected the software’s operations and the users. Read through this article to understand Robinhood trading software’s recent controversies.

What is Robinhood?

Robinhood is a top and popular brokerage application among numerous millennials or users for its efficient and commission-free stock trading. The software operates under the HOOD ticket. After the first day as a company, the software designers met various hurdles or problems, resulting in a lower opening share of $38.

Remember, the software debuted, the priced shares were as low as $38 – $42, and the company sold up to 52.4 million shares after opening. The sales of these shares raised through the initial public offering were approximately $2 billion. The software company took 35% of the shares to offer the different traders using the application, which the investors had to wait till they appeared on the stock exchange to buy.

The software co-founders sold approximately $50 million in shares of stock. After which, the application is estimated to have over 22.5 million accounts with funds, representing a 151% increase from the previous records. Nevertheless, the provider is expecting a net loss from the shares or stocks due to the recent developments and controversies. Let’s look at the different current controversies surrounding this software provider.

Recent controversies Surrounding Robinhood Trading Software

Robinhood has been one of the most reliable and effective mobile application for your trading needs. Nonetheless, the recent controversies have halted or reduced their growth and affected customer operations. Below are some of the current controversies on the trading software:

Regulatory hurdles

The ongoing stock market regulatory scrutiny has created numerous controversies within the field. The regulatory hurdles have resulted in the software being a meme stock phenomenon, affecting the various services the application has been offering. Investors have been using it to purchase shares of various bankrupt institutions, gather online for entertainment, and bid shares up during the pandemic.

While customers were trading their stocks and enjoying other services for free, the software company was generating from their incomes by selling its stock orders to different Wall Street firms, such as Citadel securities. However, numerous critics contended that Robinhood and other similar brokers sent customers’ orders and stocks to firms paying higher fees instead of those completing similar orders for the right price.

Elizabeth Warren, a Massachusetts critic, has been requesting these companies to disclose how they use the customer’s data and trade details. Furthermore, Gary Gensler, the chair of the Securities and Exchange Commission, blasted the whole gamification of the stock trade on various platforms. This platform includes user-friendly applications, as it could result in a possible conflict of interest for market markers.

These comments signaled possible new regulations and rules for Robinhood and similar platforms. The rules or comments could affect the application provider’s operations and slow their progress in the mobile application stock trading field. Thus, this controversy has resulted in more inconveniences to the users, marketers, and designers.

New probes in their functions and works

Recently, the company disclosed that the Financial Industry Regulatory Authority had started new probes on its operations and applications. The authorities are investigating the non-registration status of the chief creative officers, Tenev and Bhatt. Following these probes, Robinhood has launched an evaluation and investigation on the matters to cooperate with the investigating teams.

Robinhood has also received fresh inquiries from the regulatory body seeking clarification on the employee’s trade involving AMC, GameStop, and the other meme stocks. The authorities have disclosed these details in their files. In January, the users faced the full effects of these issues, as the company blocked all the users temporarily from buying shares from GameStop and the other high-volume stocks. During this once-sleepy moment, the application raked in more than $110 million, as they had generated an unusual market wave via different social media platforms.

Despite adhering to the rules and regulations, SEC charged Robinhood later for not disclosing the different ways they used to make money. Furthermore, the charges included not getting their clients the right and best execution price during the different stock trades or investments. The company paid over $65 million to settle these charges but didn’t admit whether they were guilty or not.

New probes on Robinhood continued in late June when FINRA ordered the stock trading Software Company to pay approximately $70 million. The fine resulted from the company misleading its customers causing losses. The authorities defended this huge and hefty fine as it reflected the seriousness and scope of the company’s violation. The law ruled out that the penalties were appropriate and suitable for the company’s mistake and resulting losses.

For instance, the losses included a suicidal death of a 20-year-old customer after believing that a risky bet on Robin Hood had resulted in a $750,000 loss. The customer’s account flashed red, and when he emailed the customer support services thrice to seek more clarifications, he received no feedback, which made him take away his life. The company compensated and settled this wrongful death with the victim’s family and legal team on undisclosed terms.

Summing Up

Robinhood has developed into one of the best and most effective applications for stock trading. However, the recent controversies have threatened the progress of this mobile application. These controversies range from new probes by authorities to regulatory hurdles. Despite these controversies or limitations, the platform is happy to announce that they have invested heavily to improve stability, provide educational resources, build a reliable support service, and comply with compliance and legal terms. Robinhood is now focusing on providing the best services to its customers.