Robinhood Financial agreed to pay $1.25 million penalty to a brokerage industry regulator for failing to ensure that its customers received best prices for securities orders.
Robinhood, which lets its customers trade stocks for free, routed all trades to four securities firms that paid it for order flow, the Financial Industry Regulatory Authority said in a Thursday statement. In doing so, Robinhood didn't consider factors such as "price improvement" that it could have obtained for clients by sending trades elsewhere, the regulator said.
Retail brokers like Robinhood often make money from selling its customers' orders to high-frequency trading firms, or market makers.
Robinhood also didn't perform a systematic review of several order types such as stop and limit orders, Finra said. Robinhood didn't admit or deny the allegations, which took place from October 2016 to November 2017. As part of the settlement, Robinhood agreed to hire an independent consultant to conduct a thorough review of its compliance practices.
