Robinhood Securities LLC & Robinhood Financial LLC
For the periods of May 2014 - September 2023 (Robinhood Financial) and at least November 2018 - July 2022 (Robinhood Securities) failed to establish and maintain supervisory systems that were reasonably designed for the firms’ brokerage businesses, resulting in numerous violations of securities laws and FINRA rules. Among other things, FINRA found the following issues:
Providng customers with inaccurate or incomlete disclosures regarding collaring. Robinhood Financial provided customers with inaccurate or incomplete disclosures regarding its practice of “collaring” market orders by converting them to limit orders. Robinhood Financial has agreed to pay restitution of $3.75 million to certain customers whose market orders were collared and canceled, and who then re-entered their orders and received executions at an inferior price.
Failure to establish reasonable AML programs and CIP. Robinhood Financial and Robinhood Securities failed to establish and implement reasonable anti-money laundering programs, which caused the firms to fail to detect, investigate or report suspicious activity, including manipulative trading, suspicious money movements and instances where customers’ accounts were taken over by third-party hackers. Robinhood Financial also failed to establish a reasonable customer identification program, which resulted in the firm opening thousands of accounts when it had not reasonably verified the customer’s identity.
Failure to reasonably supervise technology used for clearing operations. Robinhood Securities failed to reasonably supervise its clearing technology system, which was used to clear trades for Robinhood Financial. The firm failed to reasonably respond to several red flags of processing delays due to increased demand on the system. Ultimately, the clearing system experienced severe latency in January 2021 due to a surge in trading volume and volatility, which, in turn, impacted Robinhood Securities’ clearing operations and its ability to satisfy certain regulatory obligations.
Failure to reasonably supervise trading in associated perrsons’ accounts. From at least October 2018 until January 2022, Robinhood failed to reasonably supervise trading in associated person’s broekrage accounts, violating FINRA Rules 3110 and 2010.
Failure to reasonably supervise communications by social media influecers. Robinhood Financial failed to reasonably supervise and retain social media communications promoting the firm that were posted by paid social media influencers. Some of these communications included statements that were promissory or not fair and balanced, and thus misleading to investors. As a result, RHF violated FINRA Rules 2210, 3110, 4511, and 2010, Exchange Act Section 17(a), and Exchange Act Rule 17a-4.
Maintenance and reporting of inaccurate or incomplete trade, order, and position data. Robinhood Securities failed to comply with numerous aspects of the firm’s reporting obligations for blue sheets (securities trading information), FINRA trade reporting facilities and the Consolidated Audit Trail. From at least November 2018 through July 2022, Robinhood Securities failed to reasonably supervise its reporting of accurate and complete trade, order, and position data to FINRA, FINRA trade reporting facilities, the Consolidated Audit Trail (CAT) Central Repository, and the Options Clearing Corporation. These failures impacted tens of thousands of blue sheets (i.e., submissions of trade data to FINRA in an automated format upon request) and other reported data concerning hundreds of millions of trades, orders, or positions, including fractional share transactions, options orders, large options positions, and short interest positions, some of which persisted until April 2024. In addition, from July 2019 through February 2022, Robinhood Financial failed to reasonably supervise the accuracy of its origin code designations, and, as a result, m, impacted RHS' s clearing Failure to reasonably supervise FINRA registrations - reasonably supervise whether the firms' asso ing in associated persons' accounts - associated persons' brokerage accounts. As tions by social media influencers - y known as "influencers"). Some of those Improper rejections of A CATS requests - of account documents to customers - 4 mismarked options orders for millions of contracts with an inaccurate origin code. Robinhood Financial violated Exchange Act Section 17(a), Exchange Act Rule 17a-3(a)(6)(i), and FINRA Rules 4511, 3110, and 2010.
Failure to prevent trading during halts and failure to reasonably supervise the execution of trades above or below specified price bands during times of extraordinary market volatility. From at least December 2019 through January 2023, Robinhood Securitiesimproperly effected trades in securities that were subject to trading halts in violation of FINRA Rules 5260, 6121, 3110, and 2010. In addition, from December 2019 through June 2022, Robinhood Securitiesfailed to establish and maintain a supervisory system reasonably designed to prevent the execution of trades during extraordinary market volatility at prices that were above or below specified price bands. As a result, RHS violated FINRA Rules 6190, 3110, and 2010.
FINRA also found that in each of these areas, and other areas described in the letter of acceptance, waiver and consent (AWC), Robinhood Financial and Robinhood Securities failed to establish a reasonable supervisory system to comply with FINRA rule obligations, including in some areas failing to reasonably respond to red flags of potential misconduct. Some of the areas addressed in the AWC were self-reported by the firms.
