Robinhood CEO Defends High Frequency Trading In Latest Blog Post
A critical issue is that many investors don’t understand the “plumbing” of how financial markets work, including what high-frequency traders do, Tenev said in a blog post.
“A handful of large companies now perform the majority of transactions in the financial markets,” Tenev wrote on Tuesday, adding that it would be part of an occasional series of publications. “These so-called market makers can more efficiently process transactions at a narrower price range. Among those who benefit from it? The everyday investor.
Robinhood, based in Menlo Park, Calif., Is in the spotlight for its handling of the memes stock episode, which included a massive rally in GameStop Corp. shares. at the end of January. As clients searched for answers, instead they encountered conspiracy theories online about the brokerage’s links to high frequency traders.
Such companies, notably Citadel Securities of Ken Griffin and Virtu Financial Inc., form an important part of Robinhood’s business. Not only do they transact through the brokerage’s clients, but they pay Robinhood for the ability to complete those orders. This is generally less risky than trading on open exchanges operated by the New York Stock Exchange of Intercontinental Exchange Inc. or Nasdaq Inc.
While the system is widespread in the industry – and monitored by securities regulators – it has also become controversial, with some Robinhood clients alarmed to learn that the company has financial ties to the general public on Wall. Street.
In December, Robinhood agreed to pay $ 65 million to settle allegations that it had not properly informed clients that it had sold their stock orders to high-frequency traders. Robinhood has neither admitted nor denied the allegations.
Tenev and Robinhood co-founder Baiju Bhatt are no strangers to the world of high-speed trading. Before creating Robinhood, they ran Celeris, a hedge fund that used high-frequency trading strategies, and Chronos Research, a software company that catered to algorithmic traders.