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Robinhood is preparing to lobby key elements of the legislation that, if adopted, could influence its business model.
The stock exchange trading startup registered its internal team to start the lobby on February 5, according to a new registration report revised by CNBC.
The tab provides a first look at the legislation the original intends to target after Joe Biden becomes president and Democrats will take control of Congress. Some invoices in the registration report could have a negative impact on Robinhood’s revenue model of profiting from customer transactions.
One of the bills Robinhood intends to target is the Wall Street Tax Act of 2019. It was introduced by Rep. Peter DeFazio, D-Ore, and Senator Brian Schatz, D-Hawaii, two years ago. in order to impose a 0.1% excise duty on certain financial transactions, including the purchase of shares, bonds and derivatives.
Imposing a trading fee has been paid as a way to lessen some of the frantic activity seen in recent weeks. A smaller trade could have a weight on the profits of Robinhood and other large online brokerage firms.
Despite not charging in advance, Robinhood and the rest of the industry rely on what is known as order flow payment instead of commissions. Market makers, such as Citadel Securities or Virtu, pay electronic brokers the right to execute transactions with clients. The broker is then paid a small fee for targeted actions, which can add up to millions when clients trade as actively as in recent months.
Robinhood has become one of the most valuable private companies in Silicon Valley. It was last valued at $ 11.7 billion, with supporters including Sequoia and Andressen Horowitz. Despite the chaos of trading and the January withdrawal, several venture capitalists told CNBC that the company is still on track for a public transaction in 2021.
A Robinhood spokeswoman declined to comment on the lobby plans.
GameStop review
Robinhood’s business model has been attacked by lawmakers and some traders after the company and other brokers in late January restricted the purchase of volatile stock transactions, such as GameStop, to their platforms. Robinhood said it did not make the move due to external pressure and that it must limit trading due to unprecedented collateral requirements in the clearing house.
The price of GameStop shares rose at the end of January, after Reddit traders pushed each other to continue to double when buying shares and caused pain to hedge funds that took over the other side of the transaction. Robinhood has since raised transaction limits.
Lawmakers from both major parties criticized Robinhood for the restrictions. One of the first men came from Rep. Ro Khanna, D-California, a Silicon Valley progressive, 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 blew up the company’s decision.
The Senate Banking Committee and the House Financial Services Committee plan to hold hearings in the coming weeks on recent trading restrictions by trading platforms such as Robinhood. Vlad Tenev, the company’s CEO, is expected to appear before the Chamber’s committee on February 18.
The two lobby groups listed in the new registration are Beth Zorc, Robinhood’s associate general counsel with 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 period as chief of staff to former chairman of the Securities and Exchange Commission, Jay Clayton.
Robinhood spent $ 275,000 on the lobby in 2020, according to the Nonpartisan Center for Responsive Policies. The companies they hired lobbied for 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-California 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 any shares of a company.
A bill introduced by Rep. Patrick McHenry, R-Texas, is also under control by Robinhood, according to the lobby’s disclosure report. The bill, which was introduced in 2020, aims to “impose a limitation on taxes and transaction fees by certain participants in the securities industry and for other purposes”.