Robinhood, a digital investment platform, has filed a draft registration statement with the Securities and Exchange Commission (SEC). The S-1 has been filed confidentially and will only become visible once the document has been approved by the SEC. Earlier this month, it was reported that Robinhood expects to list its shares on the Nasdaq. Simultaneously, it was revealed that Robinhood gained 3 million new accounts in January.
In a blog post, Robinhood revealed its intent to pursue an initial public offering (IPO) of its shares but little additional information was provided.
Robinhood did say that the number of shares to be offered and the price range for the shares have not yet been determined.
Robinhood has emerged as a popular trading platform with a younger generation. The combination of commission-free trading while offering features like cryptocurrency or the ability to emulate successful traders has ushered in a new era of investing. Robinhood also offers many bank features such as interest-bearing accounts and bill-paying services.
In 2020, Gallup revealed a survey that indicated approximately 55% of the population holds security investments – a percentage that has held constant since 2010. While better than most other countries, this percentage has declined from over 60% in the early 2000s. Yet the combination of multiple “stimy” checks have fueled younger investors to join the investing sector – something that is good for the country. Historically, investing in securities has largely correlated with a wealthier demographic but now it appears the younger demographic is participating. It is not yet clear what the percentages of investors will be post COVID – especially once you add crypto to the mix.
While Robinhood has experienced incredible success in attracting new accounts the recent GameStop/Reddit/Robinhood saga removed some of the lustre from the platform. Some members of Congress criticized Robinhood for generating the bulk of its revenue via payment for order flow – a legal strategy but opaque in reality. In December 2020, the SEC alleged that Robinhood failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them, and with failing to satisfy its duty to seek the best reasonably available terms to execute customer orders. Robinhood settled the allegations by paying a $65 million penalty.
Robinhood’s IPO will be closely watched by both the Fintech industry as well as traditional financial services firms. In some respects, it is a bellweather for the digital transformation taking place in the financial services industry. It will also be interesting to see how many IPO shares may be made available to Robinhood account holders.