Wednesday 1 September 2021 2:04 pm

SEC double hit: Robinhood comes under scrutiny for key revenue stream and share sale filing

Trading platform Robinhood has told investors that the US financial watchdog is reviewing a filing of a share sale by a group of its shareholders, a day after its share price sank on two other bouts of bad news.

The U.S. Securities and Exchange Commission (SEC) review prevents any sales being made off the filing until the regulator declares a resale filing that Robinhood submitted yesterday as complete and effective.

It’s the second time Robinhood has come under scrutiny from the SEC in 24 hours, after Commission Chairman Gary Gensler said that a ban on one of the online brokerage app’s biggest sources of revenue.

Controversial practices

Robinhood shares plummeted as much as 8.68 per cent to lows of $42.80 per share yesterday, after Gensler told Barrons that banning the controversial practice of order flow, where brokerages sell on their customer’s orders to third parties to be executed and earn fees for doing so, is “on the table.”

While the SEC has since refused to comment further, Robinhood has previously been criticised for its participation in order flow and CEO Vlad Tenev was forced to testify in front of the US House Financial Services Committee after the infamous GameStop incident.

On top of the regulatory crackdown, spiralling share prices were also the result PayPal introducing a new threat of a rival brokerage, when it yesterday announced that it was exploring how it could allow US customers to trade stocks using its platform.

Volatile trading

It’s not the first time Robinhood’s shares have taken a dive in the turbulent month since its IPO at the end of July.

Robinhood angered many retail investors a week after going public when it said early investors may sell up to 98m shares, but that it wouldn’t receive any of the proceeds.

When it filed to register the sale of these 98m shares, Robinhood’s stock price plummeted as much as 28 per cent, just a day after they’d jumped more than 50 per cent.

After it took the unusual move of offering around a third of its IPO shares to retail investors who are users of its app, Robinhood warned this could spark volatile trading upon listing.