To: Interested Parties
From: Dennis Kelleher, Co-Founder, President and CEO
(Media Contact: Anton Becker, Dir. of Communications abecker@bettermarkets.org)
Date: July 26, 2022
Re: July 29th Marks the One-Year Anniversary of Robinhood’s IPO
One year ago on Friday, July 29th, the financial firm Robinhood went public at $38 a share. Today, the stock hovers at around $9 a share. In the past year, Robinhood has lost 10% of monthly users and laid off 9% of employees. Robinhood’s retail traders have fared even worse, especially during the Gamestop Frenzy of 2021.
Of course, it wasn’t supposed to be like this. Robinhood claimed it was going to “democratize Wall Street” by providing easy access to stock market riches and less expensive, if not free, financial products and services. While Wall Street and finance more generally can and should be democratized, the Robinhood model based on maximizing frequent high-risk trading, prompted by predatory gamified apps to generate as much payment for order flow (PFOF) as possible, is not how. These are exploitive practices that enrich Wall Street often at the expense of those least able to afford the losses.
Robinhood’s IPO anniversary is also an opportunity to look back on January 2021 when a trading frenzy erupted in the stock market around so-called “meme stocks” like GameStop. In just 16 days, GameStop’s share price rose by 1,600% for no apparent reason. The trading frenzy was fueled by new retail traders talking on Reddit subforums like w/wallstreetbets, many of whom were determined to hurt hedge funds shorting the meme stocks. (They, in part, succeeded.)
Most of these retail meme-stock traders and redditors were using apps like Robinhood, until the app suddenly prohibited certain transactions, such as buy orders on stocks like GameStop and similar meme stocks, effectively helping Wall Street hedge funds shorting the stock, but hurting retail traders and Main Street investors.
The bottom line: Equity markets and finance can be democratized without the exploitation and manipulation we have seen with Robinhood. Better Markets has followed these issues closely and produced a myriad of resources about Robinhood, gamification, payment for order flow, short selling and more. As we approach Robinhood’s IPO anniversary, it is important to remember the highlights and lowlights of this company, the false promises, and the damage it has caused.
A sampling of Better Markets’ work on Robinhood is below:
- Dennis Kelleher live interview on CNBC: “Retail boom and bust? SEC Scrutiny into Robinhood”
- Law Review Article (July 2022): “Democratizing Equity Markets With and Without Exploitation: Robinhood, GameStop, Hedge Funds, Gamification, High Frequency Trading, and More”
- Dennis Kelleher did a Reddit video AMA with Superstonkto discuss the frenzy, the questions that still remain regarding Robinhood, and how the community can get involved to bring about change. You can watch the AMA here.
- Fact Sheet of the Key Issuesraised by Robinhood, Reddit, Citadel, GameStop, and rigged markets.
- Dennis Kelleher’s testimony before the House Financial Services Committee on the Robinhood, GameStop saga
Additional Information:
- SEC Charges Robinhood With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution
- FINRA: Robinhood Ordered to Pay Approximately $70 Million for Systemic Supervisory Failures and Significant Harm Suffered by Millions of Customers
- SEC Staff Report on Equity and Options Market Structure Conditions in Early 2021
- A Report by the Ad Hoc Academic Committee on Equity and Options Market Structure Conditions in Early 2021 (questioning the conclusions of the SEC Staff Report)
- Game Stopped: How the Meme Stock Market Event Exposed Troubling Business Practices, Inadequate Risk Management, and the Need for Legislative and Regulatory Reform (Report of the Democratic Staff of the House Financial Services Committee)
