Robinhood has responded to a long list of questions from Senator Elizabeth Warren, Democrat of Massachusetts, about its businesses practices, and what went wrong during the height of the so-called meme stock mania. The DealBook newsletter got the first look on Wednesday at the broker’s 195-page response.
The questions and responses indicate Ms. Warren’s likely focus as the Senate Banking Committee, of which she is a member, scrutinizes the fintech company and push for securities regulation. More immediately, the back-and-forth serves as a preview of likely themes at a hearing in the House on Thursday on the market frenzy that will include Vlad Tenev, Robinhood’s chief executive.
The letter to Ms. Warren from Robinhood reiterated the company’s previous comments about the capital constraints that forced it to halt trading in some stocks during the height frenzied trading in shares of GameStop, AMC and others.
When pressed by Ms. Warren, Robinhood said it did not “share customer data beyond customer orders” with firms like Citadel Securities, although it did not say what was included in those customer orders. When asked how much money it made from Citadel Securities and other financial firms, Robinhood referred to its public disclosures of payment for order flow contracts — the complex practice through which Robinhood makes its money.
“Robinhood does not receive any money from Citadel Securities other than rebates received through payment for order flow, all of which are disclosed publicly,” a spokesperson for Robinhood told The Times.
Kenneth C. Griffin, the chief of the hedge fund Citadel, will also testify Thursday at the House hearing.
Robinhood also answered Ms. Warren’s inquiries about its use of mandatory arbitration agreements, which can relinquish a user’s right to take the company to court. Robinhood, which said it “is open to reviewing its use of arbitration,” noted that only one of its 2020 cases resulted in a final ruling by an arbiter, with an award for $0.
“Robinhood promised to democratize trading, but hid information about its prerogative to change the rules by cutting off trades without notice — and about customers’ inability to access the courts if they believe they’ve been cheated — behind dozens of pages of legalese,” Ms. Warren said. She may press the Securities and Exchange Commission to ban forced arbitration practices, investigate Robinhood’s relationship with Citadel Securities, explore raising capital requirements for brokerage firms and clarify its rules on market manipulation.
“I’m going to keep pushing regulators to use the full range of their regulatory tools to ensure the fair operation of our markets, particularly for small investors,” Ms. Warren said.