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Robinhood prepares to lobby important pieces of legislation that, if passed, can weigh on the business model.
According to a new registration report reviewed by CNBC, the stock trading startup registered its own team to begin lobbying on Feb. 5.
The filing provides a first glimpse of the legislation the start-up plans to address in the wake of Joe Biden becoming president and Democrats taking control of Congress. Some accounts on the registration report could negatively impact Robinhood’s revenue model for benefiting from customer transactions.
One of the bills that Robinhood wants to target is the Wall Street Tax Act of 2019. It was introduced by Rep. Peter DeFazio, D-Ore., And Sen. Brian Schatz, D-Hawaii, two years ago, targeting a 0.1% excise tax on certain financial transactions, including the purchase of stocks, bonds and derivatives.
Imposing a trade tax is one way to dampen some of the frenzied activity of the past few weeks. Less trading could weigh on the profits with Robinhood and other major online brokers.
Despite not charging for it up front, Robinhood and the rest of the industry rely on what’s known as payment for order flow rather than commissions. Market makers, such as Citadel Securities or Virtu, pay e-brokers for the right to execute client transactions. The broker is then paid a small fee for the shares being routed, which can add up to millions when clients trade as actively as they have in the past few months.
Robinhood has become one of Silicon Valley’s most valuable private-sector start-ups. It was last estimated at $ 11.7 billion with backers including Sequoia and Andersen Horowitz. Despite the trading chaos and setback in January, multiple venture capital investors told CNBC that the company is still on track for an IPO in 2021.
A Robinhood spokeswoman declined to comment on the lobbying plans.
GameStop investigation
Robinhood’s business model came under fire from lawmakers and some traders after the company and other brokers restricted the buy side of volatile stock trades, such as GameStop, on their platforms in late January. Robinhood said it had not made the move due to outside pressure, and had to restrict trading due to unprecedented collateral requirements from its clearing house.
GameStop’s stock price had skyrocketed in late January after traders on Reddit forced each other to keep doubling down on buying stocks, causing pain for hedge funds who took the other side of the trade by going short. Robinhood has since lifted the limits on transactions.
Lawmakers from both major parties criticized Robinhood after those restrictions. One of the first barbs came from Rep. Ro Khanna, D-Calif., A progressive representing Silicon Valley, called for “more regulation and equality” in the financial markets in a statement on Robinhood’s move. Rep. Alexandria Ocasio-Cortez, DN.Y., and Sens. Ted Cruz, R-Texas, and Elizabeth Warren, D-Mass., Also overturned the company’s decision.
The Senate Banking Committee and House Financial Services Committee aim to hold hearings in the coming weeks on recent trade restrictions by trading platforms such as Robinhood. Vlad Tenev, the trading company’s CEO, is expected to appear before the House committee on Feb. 18.
The two lobbyists listed on the new filing are Beth Zorc, Robinhood’s associate general counsel, who has previous experience with Wells Fargo, and the Senate Banking Committee, along with Lucas Moskowitz, the company’s deputy general counsel. Moskowitz’s previous work included a spell as Chief of Staff to former Securities and Exchange Commission Chairman Jay Clayton.
Robinhood spent $ 275,000 on lobbying in 2020, according to the impartial Center for Responsive Politics. The companies they hired lobbied the SEC.
Another proposal that Robinhood is pursuing is the Inclusive Prosperity Act of 2019. The bill was introduced two years ago by Rep. Barbara Lee, D-Calif., And Senator Bernie Sanders, I-Vt. The hope of the legislation is to impose an excise duty on the transfer of ownership of certain securities, including shares in a company.
A bill submitted by Rep. Patrick McHenry, R-Texas, is also being investigated by Robinhood, according to the lobby report. The bill, introduced in 2020, aims to “restrict taxes and fees for transactions by certain securities industry participants, and for other purposes.”