Featured Article: ‘Robinhood’ … What’s all this fuss about ‘Robinhood’?

In the light of the recent controversy over GameStop shares, we take a look at the growing trend for casual, amateur investing and how the Robinhood app has enabled this.

Robinhood

Robinhood is a free-trading app that lets any investor trade stocks, options, exchange-traded funds, and cryptocurrency without paying commissions or fees.  Robinhood is paid by “market makers” who are typically large investment firms/financial institutions that create liquidity in the market e.g., Citadel.  These market-makers quote both a buy and a sell price and hope to make a profit from the difference between the two, known as the spread.

As Robinhood explains, “When you buy or sell a stock, Robinhood sends your orders to market makers that execute your trades. Market makers send a record of the trade to Robinhood Securities, which works with a clearinghouse to record the trade. It takes two days for the clearinghouse to transfer the stock to the buyer and funds to the seller. This is known as “clearance and settlement.”

This way of ensuring that everyone gets what they agreed to when the trade executed is referred to in the industry as the trade date plus two days to settle (T+2).

What Happened With GameStop?

Recently, Robinhood prevented users from buying shares in GameStop (GameStop Corp., an American video game) and some other companies (Nokia and AMC) after a big price surge upwards for (what had previously struggling) GameStop. It has been reported that amateur investors following the Wall Street Bets forum on Reddit started putting lots of money into buying GameStop’s stock in order to push up the price. This, in turn, would have made it difficult for any of the big hedge fund investors who may have been relying on “short selling”/”shorting”.  This practice, which is essentially betting on the value of a company’s stock value to fall sharply involves hedge funds borrowing shares from investors for a fee and waiting until their value falls before buying them back (for a lesser amount) to make a profit.

The buying of shares by the Reddit forum investors, therefore, appears to have put pressure on the big hedge funds to try and buy back the shares they had borrowed quickly to stop any bigger losses (known as ‘covering’). Unfortunately, this buying back would have helped to keep inflating the value.

Controversy

Robinhood suddenly intervened by preventing users from buying shares in GameStop.  This caused controversy and anger and there were accusations that when it looks as though small, amateur investors look like making some money and hurting the established big hedge funds, their opportunity is stopped. The point was also made by some people that those on Wall Street may only appear to care about the rules when they’re the ones getting hurt.

Government Too

President Biden’s Press secretary Psaki had already said that the new administration’s team had been monitoring the situation and Massachusetts state regulator William Galvin asked the New York Stock Exchange to suspend GameStop for 30 days to allow a cooling-off period, saying that it looked more like gambling than investing.

Legal Action

Afters investors were stopped from buying GameStop shares, a legal action was then filed (last week) which claimed that Robinhood was acting purposely to rig the market in favour of the big financial institutions (who are not Robinhood’s customers) and to retail investors of possible financial gains.

Other Accusations

There were also accusations by commentators on behalf of some of the big financial institutions that the huge amount of trading in GameStop shares by individual investors had been used as a way for people to get their own back on them and deliberately try to demonstrate that they have the power to hurt them.

Also, there were accusations on some social media accounts that billionaire financier Ken Griffin had put pressure on Robinhood to cease GameStop trading in order to benefit Citadel Securities (his company) which acts as a market maker for Robinhood.  

Robinhood Says

Robinhood denied that it did anything to deliberately favour the big financial institutions and deprive its customers.  In a blog post it explained that as a Clearing brokerage, Robinhood Securities is a member of clearinghouses which have membership rules, approved by the SEC, that govern the activity of their members. This means that, if a firm’s customers have more buy than sell orders, and the securities they’re buying are more volatile, this can trigger problems and charges.  In the case of Robinhood, the amount required by clearinghouses to cover the settlement period of some securities rose ten-fold, causing the rules to kick-in and this triggered the placing of “temporary buying restrictions” on a “small number of securities”.

Robinhood was keen to point out in its blog post that, “It was not because we wanted to stop people from buying these stocks. We did this because the required amount we had to deposit with the clearinghouse was so large—with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements—that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements”.

Robinhood says its goal is still “to enable purchasing for all securities on our platform”.

Popular During Lockdown

Amateur investing, such as that on Robinhood, has become more popular during the lockdown as people have sought ways to learn new things, perhaps make some money during difficult times, and find an extra income-stream going forward.

Criticism

Robinhood has also been the subject of some criticism in that it could be perceived as making investment seem like a “game for dabblers”, could be very risky for investors and could create disruptive bubbles in some stock.

Silver

In the wake of the GameStop episode and following this kind of criticism, it appears that investors have already started targeting silver trading with the silver price hitting 8-year high.

Some analysts have said, however, that it would not be as easy for retail investors to have a massive impact the silver price, because there are not many shorts in this market and there is a large off-exchange market for silver where banks trade on behalf of clients.

Looking Ahead

The move to silver shows that amateur investing looks set to continue and it is likely that there may be more surprises to come via many investors using Robinhood after they have seen that they can have a real effect on markets and on the big players in some of those markets.

Grindr in Norway Fined £8.5M

The LGBTQ+ dating app Grindr in Norway was issued an £8.5m penalty for the alleged sharing of users’ sensitive personal data with third-party advertisers without obtaining appropriate consent. 

Complaint

The fine is the result of a legal complaint by the Norwegian Consumer Council (Forbrukerrådet) last year, where it expressed concern that users of the app may not have been in control of their data and that the sharing of personal data (for targeted advertising purposes) was putting them at risk of discrimination, manipulation, or exploitation.

What Data?

The kind of data that Grindr collects includes chat texts and images, physical characteristics, HIV status, and details of sexual preferences, as well as email addresses and location and device data.

Safety

In addition to the matter of data protection law, this case involved concerns about the safety of those users whose data was being shared because many may live in areas where they can still be legally discriminated against e.g., Russia, the UAE or Pakistan.

Findings

The Norwegian Data Protection Authority, known as Datastilsynet, concluded in the case of Grindr that valid consent to share personal data with advertisers, particularly data that needs special protection such as sexual orientation had not been obtained from users by Grindr.

Datastilsynet also found that in being made to accept the whole privacy policy in order to use the app, users were not being asked for the specific consent necessary for sharing data with third parties and that information about Grindr’s data-sharing hadn’t been effectively communicated.  It was found that the app had transmitted users’ locations, user-tracking codes, and the app’s name to at least five advertising companies.

The app has been given until 15 February to respond to the case.

Grindr Says

In a statement in the New York Times, a Grindr spokesperson said that the company had obtained “valid legal consent from all” of its users in Europe on multiple occasions and was confident that its “approach to user privacy is first in class” among social apps.  Also, the spokesperson said that “We continually enhance our privacy practices in consideration of evolving privacy laws and regulations and look forward to entering into a productive dialogue with the Norwegian Data Protection Authority”.

Nevertheless, Norway’s data regulator thought that Grindr’s actions had been severe enough to warrant a major fine.

Not The First Time

This is not the first time that Grindr’s data protection has been called into question.  For example, last January, its Android app was found to have been sharing very accurate location information about users, and in October 2020 an email hacking vulnerability was found in the app.  Also, in April 2018, the UK’s Information Commissioner’s Office (ICO) said it was investigating Grindr after it was discovered that the app had shared data with two external companies, including information on HIV status and date last tested.

What Does This Mean For Your Business?

This is a reminder to businesses everywhere that specific consent and being clear about data practices is very important and that relying on unlawful ‘consent’ could lead to huge fines. In this case there also a clear element of danger and threat to the users of the app if their information is shared because in some countries, users may face legal discrimination, violence and more. Grindr has been in the spotlight before over its data practices and it is a shame that lessons don’t appear to have been learned.  This story also highlights how the practices of advertising technology companies may also warrant some scrutiny as although targeted advertising may be good for businesses, it should not be at the expense of the potential safety and wellbeing of those whose data has been used.

Contactless Payment Limit Could Be Raised to £100

The Financial Conduct Authority (FCA) has asked the UK Treasury to consider increasing the maximum contactless payment to £100.

Changing Payment Behaviour

The move away from handling cash due to its potential infection-passing risk, and the lockdowns making consumers less likely to visit ATMs or town centres have led to a move away from cash towards contactless. 

Figures

For example, the total value of contactless payments in 2020 increased by 7 per cent compared with 2019 and there was a 29 per cent increase in the use of contactless in UK grocery stores.  Barclaycard figures show that contactless payments accounted for 88.6 per cent of all card payments in 2020.

£45 In April 2020

The maximum limit for contactless had already been increased from £30 to £45 in April last year in a bid to take account of the changing situation for shops and merchants. UK Finance data shows that although the proportion of contactless payments fell, probably due to measures taken to close parts of the hospitality industry (pubs and restaurants), and public transport measures, there was an increase in the total value of contactless payments in the UK in October.

Contactless Fraud Increase Worry

Raising the maximum payment to £100 on contactless, where identity verification is not required, has led to some expressing concern about a possible resulting increase in fraud.  Figures (UK Finance) for 2020 show that fraud accounted for 2.5p in every £100 spent.

What Does This Mean For Your Business?

The FCA appears to be responding to the changing needs of consumers and merchants as the pandemic has led to a greater reliance on contactless.  Although the FCA set the boundaries for payments it is down to the card issuers to decide upon the actual limits. Although a £100 limit sounds convenient from a consumer’s point of view, shops are concerned that the trade-off is the risk of higher-value theft and the British Retail Consortium (BRC) has expressed concern about the risk of even greater losses from incomplete contactless payments at self-checkouts costing retailers more than the millions it’s costing them already in lost revenue. The BRC has also suggested that a higher priority issue to address than the maximum payment limit is high card fees.  With the pandemic dragging on and people into their second month of the latest lockdown, it does look like there will be an increase to the new £100 maximum contactless limit.

Poorest People Excluded By Broadband Prices

A survey by Citizens Advice has found that more than one in six people are struggling to afford their broadband during the third lockdown and that poorer people are locked out altogether.

Certain Groups Worst Hit

Citizens Advice, which also conducted a similar survey during the first lockdown, found that the groups struggling most with their broadband bill were people with children, disabled people, people from Black, Asian or ethnic minority backgrounds, those who were shielding, and young people. Also, customers in receipt of low-income benefits e.g., Universal Credit were found to be almost twice as likely to struggle to pay their bill as other customers.  By the end of 2020, Citizens Advice found that an estimated 2.3 million people had fallen behind on their broadband bill.

Takes Much Greater Proportion of Low-Income Budget

In December 2020, Ofcom found that if households were paying the average £37 a month for landline and broadband, this would take around four times the proportion of a low-income household’s budget, compared to an average household. 

Only 3 of 13 Affordable

The Citizens Advice survey found that sadly, only three of the largest 13 broadband companies offer affordable tariffs to people on low-income benefits.  This has led Citizens Advice to call on the government and Ofcom to fast-track plans that will make it compulsory for all providers to offer affordable tariffs to people on low-income benefits.  In December 2020, the European Electronic Communications Code, which came into UK law, should allow Ofcom and the government to do just that. 

Pandemic Highlighted The Importance of Broadband

The pandemic lockdowns have highlighted just how important broadband is and that it is now more of an essential utility for all. For everything from working online (remotely) and communications with relatives to online shopping and job applications or job interviews, broadband is now essential to allow people to participate fully in society.

What Does This Mean For Your Business?

With the European Electronic Communications Code now in UK law and with Ofcom appearing to be of the opinion that affordable broadband is “vital”, it is likely that big broadband providers will now face pressure to ensure that more of them provide affordable tariffs.  As broadband is now considered an essential utility, it is important that people are not excluded from it, so that aspects of today’s society and that people and their families’ opportunities and life chances aren’t damaged or limited simply because their broadband services are too expensive. Businesses deal with all sections of society e.g., customers, recruitment and more, so it is in the economy’s best interest that as many people as possible at least have access to broadband.

Tech Tip – Colour Filters

If you’re having trouble seeing what’s on the screen, Windows 10 allows you to apply a colour filter which changes the screen’s colour palette and can help you distinguish between things that differ only by colour. Here’s how to use it:

– Select Start  > Settings  > Ease of Access > Color filters.

– Switch on the toggle under Turn on colour filters.

– Select a colour filter from the menu. Try each filter to see which one suits you best.

– To get to colour filter settings in previous versions of Windows 10, select Start  > Settings  > Ease of Access > Color & high contrast.