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Robinhood is preparing to lobby key pieces of legislation that, if passed, can weigh on your business model.
The stock trading startup registered its internal team to start lobbying on February 5, according to a new registration report analyzed by CNBC.
The process gives a first idea of what legislation the startup plans to achieve after Joe Biden becomes president and Democrats take control of Congress. Some accounts in the registration report can negatively impact Robinhood’s revenue model of profiting from customer trades.
One of the bills Robinhood plans to achieve is the Wall Street Tax Act of 2019. It was introduced by Congressman Peter DeFazio, D-Ore., And by Senator Brian Schatz, D-Hawaii, two years ago, with the goal of imposing a 0.1% consumption tax on certain financial transactions, including the purchase of shares, bonds and derivatives.
The imposition of a trade fee was launched as a way to cushion some of the hectic activity seen in recent weeks. Less trading can weigh on the profits of Robinhood and other major online brokers.
Despite not charging upfront, Robinhood and the rest of the industry rely on what is known as an order payment flow instead of commissions. Market makers, like Citadel Securities or Virtu, pay e-brokers for the right to trade with customers. The broker then receives a small fee for the routed shares, which can reach millions when clients trade as actively as they have done in recent months.
Robinhood has become one of the most valuable private start-ups in Silicon Valley. It was last valued at $ 11.7 billion, with sponsors like Sequoia and Andressen Horowitz. Despite the commercial chaos and setback in January, several venture capitalists told CNBC that the company is still in the process of making an IPO in 2021.
A spokeswoman for Robinhood declined to comment on the lobbying plans.
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Robinhood’s business model was criticized by lawmakers and some brokers after the company and other brokers in late January restricted the buy-side of volatile stock trades, such as GameStop, on their platforms. Robinhood said it did not make the change due to any external pressure and that it needed to limit negotiations due to unprecedented collateral requirements from its clearinghouse.
GameStop’s stock price skyrocketed in late January after Reddit brokers pressured each other to continue doubling stock purchases and inflicting pain on hedge funds that had taken over the other side of the trade by selling short. Robinhood has since raised the bar on negotiations.
Lawmakers from both major parties criticized Robinhood after these restrictions. One of the first criticisms came from Congressman Ro Khanna, D-Calif., A progressive who represents Silicon Valley, called for “more regulation and equality” in the financial markets in a statement about Robinhood’s action. Congressman Alexandria Ocasio-Cortez, DN.Y., and Sens. Ted Cruz, R-Texas, and Elizabeth Warren, D-Mass., Also criticized the company’s decision.
The Senate Banking Committee and the Chamber’s Financial Services Committee intend to hold hearings in the coming weeks on the recent trade restrictions by trading platforms like Robinhood. Vlad Tenev, the CEO of the trading company, is due to appear on the House committee on February 18.
The two lobbyists listed in the new lawsuit are Beth Zorc, associate general counsel for Robinhood, who has previous experience at Wells Fargo and the Senate Banking Committee, along with Lucas Moskowitz, the company’s deputy general counsel. Moskowitz’s previous work included a stint as chief of staff to former Securities and Exchange Commission chairman Jay Clayton.
Robinhood spent $ 275,000 on lobbying in 2020, according to the non-partisan Center for Responsive Politics. The hiring companies lobbied the SEC.
Another proposal that Robinhood is seeking is the 2019 Inclusive Prosperity Act. The bill was presented two years ago by Rep. Barbara Lee, D-Calif., And by Senator Bernie Sanders, I-Vt. The hope of the legislation is to impose a special excise tax on the transfer of ownership of certain securities, including any company stock.
A bill introduced by Congressman Patrick McHenry, R-Texas, is also under scrutiny by Robinhood, according to the lobby’s disclosure report. The bill, which was introduced in 2020, aims to “impose a limitation of taxes and fees on the transactions of certain participants in the securities sector and for other purposes”.