SEN WARREN STATES ROBINHOOD DESERVES 'CLOSE LOOK' FROM SEC
Progressive Senator Elizabeth Warren (D-MA) has come out in vocal support for SEC rules being applied to companies like Robinhood, Max Zahn with Andy Serwer reported for Yahoo Finance.
Such regulations should impose disclosure requirements regarding an app's use of customer data and trades, and address the heart of "what business models ought to be permissible" to ensure stable and transparent markets, Warren said.
Her comments came in light of SEC Chair Gary Gensler in House testimony on Thursday, criticizing apps that "gamify" stock trading and the potential conflict of interest for market makers that profit from the execution of high-volume trades, hinting at potential new rules that would apply to the popular trading app Robinhood and market maker Citadel Securities.
"My principal issue with Robinhood is how much they actually disclosed to their customers about how their customers' data and how their customers' trades were being used," says Warren, author of a new book entitled "Persist," added the Senator. "I want to see the SEC take a close looks."
"I think it's time for the SEC to update its regulations on disclosure." Senator Elizabeth Warren (D-MA) speaks with Yahoo Finance Editor-in-Chief Andy Serwer on "Influencers with Andy Serwer." "But also update its regulations around what business models ought to be permissible in a market so that those markets are steady, transparent, are open to everyone," she says. "Not markets where the real money is being made in the back in the shadows where no one can see it."
Robinhood declined to respond to Warren's remarks.
The SEC brought charges against Robinhood in December accusing it of misleading customers about the revenue it derives from the fulfillment of orders. The agency reached a $65 million settlement with the company that month, though Robinhood did not admit to or deny the agency's findings.
In his testimony on Thursday, Gensler questioned Robinhood's practice of accepting smaller price improvements for traders in exchange for higher payments from the market makers that fulfill the trades — a practice that can effectively nullify the commission-free trading promised by the platform.
Robinhood drew heightened scrutiny on Jan. 28, when the platform temporarily prevented users from buying shares of GameStop (GME) and other high-volume stocks.
Some observers speculated that Robinhood had suspended buying GameStop to benefit Citadel — a hedge fund that is one of Robinhood's market makers, Citadel Securities. Citadel helped put together $2 billion for Melvin Capital, another hedge fund that had suffered losses from its short position on GameStop. Many called on the SEC to prohibit such suspensions going forward.
"It's long past time for regulators to wake up and prevent market manipulation in the future," Warren tweeted on Jan. 28. Over the following weeks, investors filed more than 90 lawsuits alleging that the suspension of buying GameStop had violated the law and unfairly penalized traders.
Since soon after the suspension, Robinhood has rejected speculation about a sinister ulterior motive for the move. Rather, the company has said it took the action due to minimum capital requirements that it must deposit with clearinghouses, which it says became too onerous amid the high-volume trading.