Premarket Shares: The Robinhood trading boom is under the microscope


What happens: Massachusetts officials on Wednesday claimed the company violated state laws by attracting inexperienced investors with game elements such as colorful confetti and other aggressive marketing techniques to celebrate trading, reports Matt Egan of my CNN business colleague. It was also said that Robinhood was unable to maintain its system after the explosive growth resulted in dozens of outages and interruptions in 2020.

Robinhood has used strategies such as gamification to encourage and entice the continued and repetitive use of its trading application, the executive body of the Massachusetts Securities Department said, “targeting younger individuals … with little to no such investment experience.”

Robinhood said in a statement that it does not agree with the allegations and plans to defend itself “vigorously”. The startup pointed to improvements in the range of options, additional safeguards and improved educational materials.

“Millions of people have made their first investment through Robinhood and we continue to focus on serving them,” the company said.

Big picture: Robinhood has become one of the winners of the pandemic. Between January and April, it added 3 million funded accounts and its private market valuation rose to $ 11.2 billion.

The growing influence of retail investors has been a big point of discussion this year, although Nick Maggiulli of Ritholtz Wealth Management’s September review of Robinhood’s stock market moves found the impact to seem exaggerated.

The Robinhood boom has drawn the attention of other online brokers. In a report earlier this year, PitchBook said Robinhood was “gaining significant market share at a time of volatility in pandemic-driven trade,” while cutting fees across the industry.

But the surge in popularity was accompanied by increased control over the practices. In June, the family of a 20-year-old student said he died by suicide after being confused by Robinhood’s account of an apparently negative $ 730,000 balance. The startup’s co-founders said “they were personally destroyed by this tragedy” and a number of changes to the platform were announced in response.

Regulators are debating how often newcomers make trades. According to the Massachusetts complaint, an inexperienced client was able to trade more than 12,700 trades in just six months.

Frequent technical issues are also a concern. Between January 1 and the end of November, Robinhood complained of up to 70 outages or interruptions on its trading platform. One incident occurred on March 3, preventing some Robinhood users from participating on a day when the S&P 500 reached a staggering $ 1.1 trillion.

What follows: Massachusetts regulators are demanding a number of sanctions against Robinhood, including fines, an independent review of the platform, and compensation for injured investors.

The company may be forced to make further changes due to plans for an initial public offering. According to a Bloomberg report, the company is looking for consultants for an IPO next year. Serious regulatory threats may weigh on interest as well as stock pricing.

Are the stimulus checks coming soon?

Congress leaders – after months of bitter stalemate and Americans looking to relieve millions – have indicated they are working on a new rescue package that could pass through both chambers within days.

Details, details: The price tag for the stimulus package could approach $ 900 billion, a familiar source told my CNN colleagues on Wednesday, although many key details remain unchanged.

The convention is expected to include a new set of incentives amounting to $ 600 per person, but no money for state and local aid, Democrats were a priority, and no kind of litigation protection was needed for Republicans.

The measure is expected to include an additional $ 300 a week in unemployment benefits, as well as up to $ 330 billion in money spent on small business loans and the distribution of vaccines.

Remember: The proposal amounts to approximately twice the amount proposed by Senate Republicans. But much less than what House President Nancy Pelosi has been demanding for months.

Prior to the election, Pelosi persevered for a $ 2.2 trillion deal. He is now willing to support a much smaller proposal, arguing that Democrats will have another chance to act when Joe Biden becomes president in January.

That said: Advanced members of the House, Senator Bernie Sanders and at least one Republican, Senator Josh Hawley of Missouri, have called for another round of the $ 1,200 stimulus check. This time they will probably be disappointed.

The Federal Reserve, meanwhile, assured the public on Wednesday that it would not leave support for the economy until “significant” progress was made to address the employment situation and maintain stable prices.

Bitcoin has surpassed $ 20,000 and is constantly fluctuating

Tell me what he will say about the wisdom of investing in bitcoin, but the best-known cryptocurrency breaks records and the rally shows no signs of slowing down.

The latest: Bitcoin will trade over $ 22,700 on Thursday after crossing the $ 20,000 threshold for the first time earlier this week. It more than tripled this year, rising 217%, partly due to the weakening dollar.

“It’s no surprise to us that bitcoin has reached $ 20,000, but it’s a very symbolic threshold for reaching the end of the historic year,” said Michael Sonnenshein, CEO of Grayscale Investments, a fellow at CNN Business, Paul R La Monica. “These are just the beginning times and we think there are a lot more runways waiting yet.”

Approvals of well-known names add to the main appeal of bitcoin. The head of BlackRock even said cryptocurrency could replace gold, and Square and PayPal’s payment giants have embraced it.

But not everyone is convinced that such spectacular profits can be sustained much longer.

“Right now, this thing is falling up, so a correction is needed,” Anthony Scaramucci, founder of Skybridge Capital, told CNN Business. “And these corrections can be violent – they can be 20-50%.”

Following

Accenture (ACN), General Mills (GIS) and Rite Aid (RAD) report results before opening up U.S. markets. Blackberry (BB) and FedEx (FDX) follow after closing.

Even today: U.S. applications for unemployment benefits begin at 8:30 last week. An additional 800,000 claims are expected, slightly below last week’s report, but still high.

Coming tomorrow: Nike (NKE) reports revenue in the middle of the key holiday shopping season.