Robinhood Faces SEC Probe For Misleading Customers About HFTs Frontrunning Their Orders

Tyler Durden

Wed, 09/02/2020 – 15:52

A few months ago, we publishedan amusing account of how the Ken Griffin-owned HFT firm Citadel sicced its army of white-shoe lawyers on Zero Hedge after we dared to explain to our audience exactly why RobinHood – and now its discount brokerage predecessors, all of whom have followed RH’s lead and abandoned trading fees – can afford to charge its clients nothing: Because the company takes all of that retail order flow and auctions it off to the highest HFT bidder, enabling them to profit by – and we want to be very careful with our language here – “trading ahead of customer orders,” a practice otherwise known as “front-running”.

With so many mom-and-pop traders parlaying their stimulus checks and enhanced unemployment benefits in the stock market, our warnings were promptly ignored (hardly a surprise – nobody cares when things are going good).

But as the S&P 500 roars to yet another record high – accompanied this time by a disconcerting rebound in the VIX – WSJ reports that the SEC is almost ready to slap Robinhood with a $10 million fine for failing to disclose to its customers exactly how their order flow would be packaged and sold to the HFT firms.

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