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  • Robinhood stock firm is reportedly under civil fraud investigation conducted by the SEC. 
  • Robinhood has allegedly not disclosed how it routes client orders to high-frequency trading shops. 
  • The investigation is in “an advanced stage” and could result in a $10 million fine.

Robinhood, a well-known millennial stock and options brokerage, is reportedly under civil fraud investigation because of its failure to properly disclose how it routes client orders to high-frequency trading shops. 

According to The Wall Street Journal report, the investigation (conducted by the Securities and Exchange Commission) is in an “advanced stage” and could result in a $10 million fine. Robinhood generates a significant portion of its revenue through a practice known as payment for order flow (PFOF). Under this deal, a broker will sell off client order flow to high-speed traders such as Citadel Securities, which internalizes and matches the orders. 

As per the report, “the two sides haven’t formally negotiated a proposed fine.” Robinhood has previously been charged with fines because of its order routing practices. In 2019, FINRA declared a $1.25 million fine against Robinhood for improperly routing orders.

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