So, you think stock trading firm Robinhood may have some “problems?” Well, their biggest problem may be Public. Oh, sorry, Public (that’s its name) is a stock trading firm that aims to be the “anti-Robinhood” of public markets, has a more social focus and does not sell its investor’s order flow.
Of course becoming the “anti-Robinhood” takes money but that does not seem to be a problem. Public is about to raise $200M in a new funding round at a $1.2 billion valuation. With some very high profile investors and advisors (plus Robinhood’s recent well-publicized “issues”), that should be no problem.
With the very recent GameStop/Reddit/Robinhood “event” making headlines, the word “democratization” has been used to describe how a new breed of investors/traders have changed Wall Street. That’s a very tall order but there certainly are changes making their way through the system.
Public aims to take “democratization” to a new level (“Democ 2.0”?) via some very unique features. First, their app makes client portfolio public to other users (hence the name) and gives customers the ability to browse others’ portfolios. Obviously there will be ways to chat and compare ideas, too (like Reddit’s chat room). And here’s an interesting new twist, since Public will not sell client’s order flow the way Robinhood does. Traders will have the option to tip the broker for executing the trade (hmmmmm!). Democracy at work for sure.
Addressing the pay for order flow (PFOF, which is a nice source of revenue for firms like Robinhood), has always been controversial. Nothing is free (yes, true) and charging no commissions means other revenue sources need to be tapped. The main criticism of PFOF is that it creates misalignment between the financial aims of the brokerage and the interests of its clients. Public has moved away from PFOF as a revenue generator for their business. Rather, Public will generate revenue by lending out clients securities (gasp, yes for short sellers to borrow), the aforementioned tipping and gaining interest on customer’s cash balances. Come on, anti-Robinhooder’s need to eat too.
So, with congressional hearings scheduled in Washington to “look into” Robinhood and its role in the GameStop event (sounds like a UFO story), the time to improve upon the “democratization of Wall Street” my be right. And, with investors/advisors like Will Smith, J. J. Watt (on the move NFL Superstar), The Chainsmokers, Shari Redstone and a host of other influential folks, Robinhood looks to have some serious competition with Public.
That’s good old-fashioned capitalism at its best.
Bill Taylor is Chief Investment Officer of digital asset management firm Entoro Wealth and a frequent contributor to Digital Wealth News