Robinhood Markets Inc. has reportedly filed confidentially for an initial public offering of its stock. However, the move has generated conversation, with the success of the offering hugely dependent on which narrative comes to define the company.
The company will look to leverage its user-friendly platform, which will appeal to investors. Robinhood is said to provide the lowest “barrier to entry” for uninformed investors who are trying their hands on the stock market and currently boasts of millions of users. Described as the “most intuitive app” ever, Robinhood has been credited with motivating the Schwab acquisition of Ameritrade and causing other big broker-dealers to offer commission-free trading platforms.
Robinhood had to battle to keep its reputation intact after making headlines in late January for blocking its customers from trading in some of the so-called meme stocks hyped on online platforms. However, the company was quick to respond to the development, with the Chief Executive Officer Vlad Tenev saying on CNBC that the decision was “not based on a liquidity issue.”
“In light of current market volatility, we are restricting transactions for certain securities to position closing only, including $AMC and $GME,” Robinhood tweeted. Consequently, the platform allowed users to their stock but not to buy any more, causing frustrated customers to show their grievance.
In a related development, Robinhood had to pay $65 million in fines to the Securities and Exchange Commission for allegedly misleading customers who lost $34 million on inferior trade prices. As the SEC observed, Robinhood “failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them, and with failing to satisfy its duty to seek the best reasonably available terms to execute customer orders.”
Robinhood’s disclosures have improved in recent times. However, its business model still heavily relies on payment for order flow, a practice that has raised eyebrows concerning its ability to satisfy its duty as a broker-dealer and ultimately provide the best trade execution, even when the companies pay for Robinhood’s order flow.
The success of the Robinhood IPO and the subsequent performance of the stock will undoubtedly depend on how the company is able to manage its reputation in coming months.
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