Season II: Blaming those that continue to empower Retail trading behind the scenes
The Robinhood saga is fascinating because it brings to the forefront so many issues.
It has been seen as a
A cultural clash between the hedge fund elite and the empowered retail investor (by Fintech innovations). Bringing to the forefront the Occupy Wall Street movement and the unregulated power of the crowds.
A governance conundrum facing privately held powerful social media platforms and privately held grown-up Fintechs; should they have the power to block users? Bringing to the forefront voting rights and decentralized finance core concepts.
A capital markets failure because the bondholders of nearly bankrupt companies have been ironically been bailed out (as per Cathie Wood ) and the T+2 settlement is clearly at the core of all the extraordinary price & volume action. Bringing to the forefront again the value of simultaneous clearing & settlement which is core on the Bitcoin.
The peak volume trading activity during these events and the risk of ripple effects of similar nature has brought to the spotlight what goes on behind the scenes when trading.
I am not referring to the behind-the-scenes activity managed by the traditional world — i.e. large incumbents like Fidelity, Interactive Brokers, TD Ameritrade who offer brokerage services (clearing, settlement, custody, reporting, etc). I am turning the spotlight to the Fintech providers that offer all these services in the Digital, API, As-a-service model.
Those that are empowering embedded finance. Think of SoFi, for example, or Square that offers investments to their customers. They don’t have in-house full brokerage services. Behind the scenes, they are using providers like DriveWealth, Apex Clearing, Axos, Calypso Tech, ….
On Wednesday, Square`s CashApp publicly blamed DriveWealth and Axos Clearing for suspending trading in AMC and Nokia stocks.
DriveWealth is an 8+-year-old Fintech that is also empowering Revolut, MoneyLion (and several others) to serve the investment needs of their customers. These are all high profile, high valuation Fintechs whose stance and communication during these times matters.
Square has chosen to point the finger to DriveWealth & Axos, in a way washing their hands and implying that if it were their technology, they would choose otherwise.
Let's watch Revolut`s messaging and MoneyLion`s who may be much smaller (c. $2billion valuation discussed as it may go public via the $GSAH SPAC).
Robinhood used to be a client of ApexClearing until they developed their in-house technology for settlement, clearing, and custody in October 2018.
Sofi is a client of Apex Clearing. The crowd on Reddit and Twitter was watching closely whether there would be any suspension and what stance Chamath would take as his $IPOE SPAC is merging with SoFi. No interruption happened.
Stash the second beneficiary from the Robinhood exodus (according to a Mizuho survey) and is also an Apex Clearing customer.
The clash of `Fintech for the people`(a la Robinhood) with `the people` (WSB+) may spill over behind the scenes.
While DriveWealth as a B2B provider of Brokerage-as-a-Service via APIs may be blamed, they are actually in the process of empowering even more retail investors. Through their recent acquisition of The Cuttone & Company this January,
DriveWealth will be able to offer retail direct access to the NYSE trading floor. Deploying the institutional-grade technology of The Cuttone & Company, retail will get connected to the floor.
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