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Robinhood is preparing to lobby for important pieces of legislation the adoption of which could weigh on the business model.
The stock trading startup registered its internal team to begin lobbying on February 5th. This comes out from a new registration report that has been reviewed by CNBC.
The filing gives an initial glimpse into the legislation the startup is targeting after Joe Biden became president and Democrats took control of Congress. Some of the bills in the registration report could adversely affect Robinhood's revenue model of profiting from customer business.
One of the bills Robinhood wants to focus on is the Wall Street Tax Act of 2019. It was introduced two years ago by Rep. Peter DeFazio, D-Ore., And Senator Brian Schatz, D-Hawaii, with a view to On Certain financial transactions, including the purchase of stocks, bonds, and derivatives, are subject to a 0.1% excise duty.
A trade tax was introduced to curb some of the frenzied activity of the past few weeks. Less trading could weigh on the profits of Robinhood and other large online brokerage firms.
Although Robinhood and the rest of the industry don't charge a fee for this, they rely on what is known as payment for the flow of orders instead of commissions. Market makers like Citadel Securities or Virtu pay e-brokers for the right to conduct customer trades. The broker then receives a small fee for the routed stocks, which can add up to millions if customers are as active as they have been in recent months.
Robinhood has grown into one of the most valuable private startups in Silicon Valley. It was last valued at $ 11.7 billion, with supporters like Sequoia and Andressen Horowitz. Despite the trading chaos and setback in January, several venture capital investors told CNBC the company is still on its way to an IPO in 2021.
A Robinhood spokeswoman declined to comment on the lobbying plans.
Robinhood's business model has come under fire from lawmakers and some traders after the company and other brokers restricted the buy side of deals for volatile stocks like GameStop on their platforms in late January. Robinhood said it hadn't taken a step due to outside pressure and was forced to restrict trading due to unprecedented demands on its clearinghouse's collateral.
GameStop's share price had risen in late January after Reddit traders pushed each other to further double purchases of stocks and hurt hedge funds that had taken over the other side of the trade by selling them short.
Short selling is a strategy in which investors borrow shares of a stock at a certain price in hopes that the market value will drop below that level when it is time to pay off the borrowed shares. Buying back borrowed stocks to close out a short position, be it profit or loss, is known as short covering.
Robinhood has since lifted the boundaries of trade.
Lawmakers from both major parties criticized Robinhood for these restrictions. One of the first barbs came when Rep. Ro Khanna, D-Calif., A progressive representing Silicon Valley, called for "more regulation and equality" in financial markets in a statement on Robinhood's move. Reps Alexandria Ocasio-Cortez [D-NY] and Sens. Ted Cruz [R-Texas] and Elizabeth Warren [D-Mass] have also blown the company's decision.
The Senate Banking Committee and the House Financial Services Committee intend to hold hearings in the coming weeks on recent restrictions from trading platforms such as Robinhood. Vlad Tenev, the trading company's CEO, is expected to appear before the House Committee on February 18.
The two lobbyists listed in the new file are Beth Zorc, Associate General Counsel of Robinhood, who has previous experience with Wells Fargo and the Senate Banking Committee, and Lucas Moskowitz, the company's Deputy General Counsel. Moskow's previous work included serving as chief of staff for former chairman of the Securities and Exchange Commission, Jay Clayton.
Robinhood spent $ 275,000 on lobbying in 2020, according to the non-partisan Center for Responsive Politics. The companies it has commissioned have campaigned for the SEC.
Another proposal that Robinhood is seeking is the Inclusive Prosperity Act of 2019. The bill was approved two years ago by Rep. Barbara Lee, D-Calif., And Sen. Bernie Sanders, I-Vt. Legislation hopes to impose a consumption tax on the transfer of ownership of certain securities, including any equity interest in a company.
A bill introduced by Rep. Patrick McHenry, R-N.C., Is also under review by Robinhood, according to the lobbying disclosure report. The law, which was introduced in 2020, aims to "limit the taxation of taxes and fees on transactions of certain participants in the securities industry and for other purposes".