July 24 (Reuters) – Robinhood Markets Inc is considering launching retirement accounts in the United States, CEO and co-founder Vlad Tenev said on Saturday during a webcast with users of its trading app seeking to participate in its initial public offering, the price of which is set for the next week.
The online brokerage has around 18 million funded investment accounts on its platform, most of which are held by retail traders.
Offering individual retirement accounts (IRAs) and Roth IRAs, which offer tax benefits to those saving for retirement, would allow Robinhood to tap into a large market. Americans held $ 12.6 trillion in IRAs at the end of March, up 2.8% from the end of December, according to the Investment Company Institute.
“We’re interested in creating more types of accounts including IRAs and Roth IRAs, we’ve heard a lot from our clients. We want to make first-time investors into long-term investors, ”Tenev said in response to one investor. question.
Because of the penalties associated with withdrawing money, IRAs tend to attract long-term investments, rather than the rapid turnaround in stocks, options, and cryptocurrencies that some investors look to Robinhood for.
In his webcast, however, Tenev said, “We see evidence that the majority of our customers primarily buy and hold. “
Robinhood, which is targeting a valuation of up to $ 35 billion in its IPO, said it would allocate 20-35% of the offered shares to its users, an unusual move for a high-profile offering. One of the reasons that many IPOs enjoy day one trading pop is that the retail investors Robinhood invited are shut out and have to buy shares in the open market.
Robinhood launched its IPO Access platform earlier this year to allow users to buy into IPOs from other companies if it can negotiate deals with the investment banks that manage them.
Some individual investors are calling for a boycott of Robinhood’s IPO on Reddit and other social media because of its handling of the “meme” market frenzy in January. Robinhood placed restrictions on the purchase of GameStop Corp (GME.N) and other stocks that hedge funds had bet against, on the grounds that it was necessary for the financial and operational stability of its platform.
Tenev said on Saturday’s webcast that Robinhood has invested in the stability of its platform to prevent another such incident.
PAYMENT FOR ORDER FLOW
Robinhood’s popularity has skyrocketed in the past 18 months of coronavirus-induced social restrictions that have held many retail investors home. He said his mission was to “democratize finance for all” by allowing users to conduct unlimited, commission-free transactions in stocks, exchange-traded funds, options and cryptocurrencies.
The brokerage has been criticized for relying on ‘payment for order flow’ for most of its revenue, whereby it collects fees from market makers for routing trades to them and however, does not charge users for individual transactions.
Critics argue that this practice, which is used by many other brokers, creates a conflict of interest, on the grounds that it prompts brokers to send orders to whoever pays the highest fees. Robinhood argues that it routes transactions based on what is cheapest for its users and that charging a commission would be more expensive.
Robinhood CFO Jason Warnick has left the door open for the company to change the practice if necessary.
“If a ban or other limitations were to be imposed, we believe Robinhood and the industry would adapt and explore other sources of revenue,” Warnick said.
Robinhood was founded in 2013 by Tenev and Baiju Bhatt, roommates at Stanford University, who will hold nearly two-thirds of the voting rights after the offer, according to a document filed with the exchange.
Robinhood client Minjie Xu, who works as a software engineer in Missouri, was unimpressed after concerns were raised about the offer’s overpriced price.
“It’s not unique to them, because I think most IPOs are too expensive,” Xu told Reuters.
Reporting by Echo Wang and Krystal Hu in New York Editing by Greg Roumeliotis and Sonya Hepinstall
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