Robinhood’s Customers Are Hedge Funds Like Citadel, Its Users Are the Product

Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by kasey_junk on Thursday January 28, 2021 @06:47PM (#25951211)

One big difference between Robinhood (and other commission free brokers) and other service providers where the users are the product (line Facebook or Google) is that Robinhood has a legal fiduciary duty to the users and a federal watchdog tasked with enforcing that duty.

Personally, as both a former trader and a current Robinhood user, I’m much more comfortable with their relationship with Citadel than I am with Facebook or Googles relationship with advertisers (I’m a google user and ex adtech person fwiw).

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by jollofricepeas on Thursday January 28, 2021 @07:20PM (#25951642)

I wonder which one RH cares more about...

- their legal fiduciary duty

- or shareholder value

My guess is like most US companies, revenue generation and shareholder value is their main concern.

Disagree? There are thousands of similar examples:

- Deustche, Chase, HSBC, etc

- housing / mortgage crisis.

- Enron, VW, Purdue Pharma, Tyco, etc.

- Every annual big pharma qui tam lawsuit.

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by kasey_junk on Thursday January 28, 2021 @08:10PM (#25952209)

I don’t mean to sound condescending but your inclusion of the breadbasket of any big company that has acted poorly in a discussion about what brokers legal duties are show why this subject is so fraught. You are extrapolating from any and all corporate scandals behaviors about a particular regulatory regime.

Broker oversight is complex and constantly changing but it’s not immaterial. It’s regularly enforced and compliance is a big part of broker ops.

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by Barrin92 on Thursday January 28, 2021 @10:18PM (#25953369)

>I wonder which one RH cares more about...- their legal fiduciary duty - or shareholder value

Given that Enron ended up losing their shareholders 70 billion caring about the latter without the former isn't really possible. Financial authorities are the ones in the US you don't really want to mess with in particular.

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by pkaye on Thursday January 28, 2021 @10:02PM (#25953234)

Aren't Deustche and VW German companies?

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by yborg on Thursday January 28, 2021 @07:27PM (#25951749)

What fiduciary duty? They disclose right up front that they are paid for order flow, and I assumed, correctly, that this meant they were allowing Citadel, et al. to front-run the retail orders and skim risk-free cream from the rubes. As a former trader, if you're fine making a donation to Ken Griffin with every trade, I suppose there's little more to say there, but Robinhood markets their service to unsophisticated investors that may not realize that is what they are effectively doing.

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by kasey_junk on Thursday January 28, 2021 @08:21PM (#25952319)

Brokerages have a duty to their traders. I imprecisely spoke when I used fiduciary as recent guidance says they have the lower “suitability standard”. With regard to fills they are covered by reg nms and the nbbo. All of that is a much stronger regime than Facebook is under and to my opinion Facebook uses their power much more detrimentally. Reasonable people can disagree on that.

All retail brokers besides vanguard and IB’s paid tier sell order flow. This enables cheap/free trades and low spreads which I view as well worth the execution difference ymmv.

I’d also suggest if your mental model is that citadel is doing risk free front running you don’t understand market dynamics correctly.

In any case it’s cheaper for me to execute my retail trades than any time in history. I’m good with that outcome.

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by entropic88 on Friday January 29, 2021 @01:18AM (#25954630)

I'm sure the average Robinhood investors volume is low enough that an Office Space penny fraction skimming scheme is a pretty meh thing.

But combined, it's sure is something.

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by kasey_junk on Friday January 29, 2021 @07:28AM (#25956555)

That’s not how internalizers work...

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by riskneutral on Thursday January 28, 2021 @07:32PM (#25951815)

Stock brokers are not fiduciaries.

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Re:Robinhood’s Customers Are Hedge Funds Like Citadel, Its U... by kasey_junk on Thursday January 28, 2021 @08:06PM (#25952164)

Sorry I used fiduciary imprecisely. All I meant to say, besides all the movement in the SEC position on wether brokers are advisors/not and what that implies about their responsibilities, there is case law and a regulatory agency responsible for it. Contrast that with Facebooks obligations to their users.

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