• The IPO filing comes as Robinhood finds itself in hot water on the regulatory front.
  • On Wednesday, the Financial Industry Regulatory Authority ordered Robinhood to pay roughly $70 million for misleading customers and systemwide outages.

In one of the most highly anticipated initial public offering announcements of the year, Robinhood Markets, known as the gateway for young investors, filed with the Securities and Exchange Commission Thursday. 

The S-1 form revealed the financial services company has 18 million retail clients, a 151% increase from 2020, and $80 billion in client assets. In 2020, Robinhood reported a net income of $7.45 million on a net revenue of $959 million. In 2019, the company reported a loss of $107 million on $278 million. 

The brokerage plans $100 million in revenue from the public offering and plans to allocate between 20% and 35% of shares to the platform’s retail customers. 

The IPO filing comes as Robinhood finds itself in hot water on the regulatory front. 

On Wednesday, the Financial Industry Regulatory Authority ordered Robinhood to pay roughly $70 million for misleading customers and systemwide outages. It is the largest ever penalty made by FINRA. 

The settlement cited the service outages that occurred in March 2020 and Robinhood’s inadequate screening process for approving options traders, which is a riskier practice. 

FINRA fined the company $57 million and ordered Robinhood to pay about $13 million in restitution to thousands of clients that were impacted or misled.

Founded in 2013, Robinhood pioneered free trading with a user-friendly app. The California-based startup became so popular that the entire exchange industry was pushed to drop trading commissions in 2019. 

Robinhood users can trade equities, cryptocurrencies and options and open cash management accounts. Most trades are free but the company profits from its premium paid subscription and its customer order flows. 

The popularity has not come without consequence though.

Following January’s GameStop frenzy, which resulted in a $1.4 billion loss for the company in the first quarter, the brokerage limited the purchase of GameStop stock.

In addition, the GameStop and AMC stock run-ups have prompted calls for further regulations on trading platforms.

To date, the US House Committee on Financial Services has had three hearings on GameStop so far, its most recent in May. SEC Commissioner Gary Gensler appeared before lawmakers and revealed that the SEC will be considering new trading rules in response to GamesStop’s short squeeze and Archegos Capital Management’s collapse. 

Gensler said that he hopes to implement new policies, including increased disclosure requirements on short selling and greater transparency for securities lending, which supports short selling. The SEC will also be seeking public input into how trading apps, namely Robinhood, manipulate trading with “gamification” features, per Gensler’s request. 

Robinhood and similar apps have been criticized for making user interfaces too video-game-like. Digital confetti used to appear when users made trades. Robinhood argues that appealing to younger investors democratizes the markets. The company has replaced the confetti image with other shapes. 

As frustrated as some lawmakers may be, financial markets attorney Paul McCurdy points out that confetti is not explicitly illegal under the Securities Exchange Act of 1934, which prohibits certain types of conduct in the markets. “I don’t think confetti is illegal, and I don’t think it is dangerous,” McCurdy said during a recent webinar about Robinhood’s role in markets.

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    Casey Wagner is a New York-based business journalist covering digital assets and macro economics. Prior to joining Blockworks, she reported on markets at Bloomberg News. She graduated from the University of Virginia with a degree in Media Studies.