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Robinhood prepares to squeeze Key legislation that, if passed, could affect its business model.
The stock-trading startup registered its in-house team to start pressing on February 5, according to a new registration report reviewed by CNBC.
The registry gives a first glimpse of the legislation the startup plans to target in the aftermath of Joe Biden’s presidency and the Democrats taking control of Congress. Some of the invoices on the scoring report can negatively impact Robinhood’s revenue model to take advantage of customer deals.
One of the bills that Robinhood plans to target is Wall Street Tax Act of 2019. It was introduced by Rep. Peter DeFazio, D-Ore. And Senator Brian Schatz, D-Hawaii, two years ago, aiming to impose a 0.1% excise tax on certain financial transactions including the purchase of stocks, bonds and derivatives.
The imposition of a trading tax has been floated as a way to dampen some of the frenzied activity seen in recent weeks. Less trading may affect profits at Robinhood and other major online brokers.
Although not charged up front, Robinhood and the rest of the industry Relying on what is known as Pay for system flow in lieu of commissions. Market makers, like Citadel Securities or Virtu, pay online brokers for the right to execute clients’ trades. A small fee is then paid to the broker for the shares being channeled, which can add up to millions when clients trade as actively as they have been in recent months.
Robinhood has grown into one of the most valuable private startups in Silicon Valley. It was last valued at $ 11.7 billion, with supporters including Sequoia and Andersen Horowitz. Despite the commercial chaos and downturn in January, several venture capital investors told CNBC that the company was still on its way to an IPO in 2021.
A Robinhood spokeswoman declined to comment on the lobbyists’ plans.
Robinhood’s business model came under heavy criticism from regulators and some dealers after the company and other brokers in late January restricted the buy-side of deals for volatile stocks, such as GameStop, on their platforms. Robinhood said that He did not make this move due to any outside pressure, And needs to limit trading due to the unprecedented guarantee requirements from its clearinghouse.
GameStop’s stock price soared in late January after Reddit traders pushed each other to keep doubling down on stock purchases, damaging hedge funds that took the other side of the deal by shorting them. Robinhood has since lifted the restrictions on trades.
Legislators from both major parties Criticize Robinhood after those limitations. One of the first criticisms came from Rep. Ro Khanna, a Democrat from California, a progressive representing Silicon Valley, who called for “more regulation and equality” in financial markets in a statement about Robinhood’s move. Representative Alexandria Ocasio-Cortez, a Dane, and Senator Ted Cruz of Texas, and Elizabeth Warren, also criticized the company’s decision.
The Senate Banking Committee and the House Financial Services Committee aim to hold hearings in the coming weeks about recent trading restrictions through trading platforms like Robinhood. Vlad Tenev, CEO of the trading company, is expected to appear before the House committee on February 18.
Two of the lobbyists included in the new file are Beth Zork, Assistant General Counsel for Robinhood, who has prior experience with Wells Fargo and the Senate Banking Committee, along with Lucas Moskowitz, the company’s deputy general counsel. Moskowitz’s previous work included his stint as chief of staff for former Securities and Exchange Commission Chairman Jay Clayton.
Robinhood spent $ 275,000 on lobbying in 2020, according to the nonpartisan Center for Responsive Politics. The firms that hired her pressed the Securities and Exchange Commission.
Another suggestion that Robinhood is targeting is Inclusive Prosperity Act of 2019. The bill was introduced two years ago by Representative Barbara Lee, a California Democrat, and Senator Bernie Sanders, I-Vt. The legislation hopes to impose a selective tax on the transfer of ownership in some securities, including any share of the shares in a corporation.
A bill introduced by Rep. Patrick McHenry, a Republican from Texas, is also under scrutiny by Robinhood, according to a lobbying report. The law ProjectIntroduced in 2020, it seeks to “impose restrictions on taxes and fees on transactions by some participants in the securities industry, and for other purposes”.