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It sometimes seems that there is no aspect of Robinhood’s business that isn’t under some sort of legal or regulatory scrutiny. Gamification of trading? Yup. Options-trading practices? Oh yeah. Systems reliability? Payment for order flow? Piss-poor customer service? The fact that the people running the place aren’t brokers? All getting a look. The cryptocurrencies driving Robinhood’s profitability? Big time.

But what about the trading app’s beloved stock giveaway? Sign up or refer someone and you get a free share of something, and you get a free share, and you get a free share! Who could possibly object to such a promotion? What miserable buzzkills out there don’t like free stuff?

Well, as we’ve discussed, there’s no such thing as truly free, and, as it turns out, the companies whose shares Robinhood is handing out gratis aren’t thrilled because the marketing gimmick isn’t free for them.

Brokerages like Robinhood are required to deliver proxy materials to a public company’s shareholders ahead of annual meetings. They are then reimbursed by the public company for the cost of distribution…. On Aug. 13, the SEC approved a proposed rule change from the New York Stock Exchange that prohibits brokers from seeking reimbursement from companies for delivering proxy materials to investors who received shares from their broker at no cost.

The new rule won’t immediately affect Robinhood, which isn’t a member of the NYSE.

But companies are now urging the Financial Industry Regulatory Authority, or Finra, which oversees brokers including Robinhood, to pass a similar rule change.

“We don’t expect the reimbursement exemption to impact us significantly, even if it were to be adopted by other regulators,” a Robinhood spokesman said.

If only it could say the same about PFOF or a crypto crackdown.

Regulators Scrutinize a Robinhood Marketing Ploy: Free Shares [WSJ]

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