Author: FOXBusiness

HOOD – Robinhood gets boost as Congress declines ban – for now – on sales tactic

Robinhood dodged a major blow to its business model following a vote by the House Financial Services Committee that resulted in the quiet shelving of an initial legislative effort to ban a practice known as “payment for order flow,” FOX Business has learned.   

Payment for order flow (PFOF) is a practice in which discount brokers sell their customers’ buy and sell orders to third-party brokerages like Citadel and Virtu Financial. It allows firms like Robinhood, Charles Schwab Co., and ETrade to offer commission-free or low-fee trading to investors. 

But the practice is not without its critics, including Gary Gensler, chairman of the Securities and Exchange Commission, who has said PFOF could lead to abuses such as not providing customers with the best price execution. 

FILE: An electronic screen at Nasdaq displays Robinhood in New York’s Times Square following the company’s IPO, Thursday, July 29, 2021. (AP)

The House Financial Services Committee, led by Chairwoman Maxine Waters, D-Calif., launched its own inquiry earlier in the year and, according to people familiar with the matter, some of its ranking members had pushed for a ban of PFOF.  

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But the legislation that the committee passed on July 30, introduced by Rep. Brad Sherman, D-Calif., fell far short of a ban. It simply directs the Securities and Exchange Commission to”study” and “consider” banning or limiting PFOF. 

The bill also directs the SEC to look at conflicts of interest based on PFOF arrangements and the impact of PFOF on the quality of order execution. 

According to the language in the latest bill, the SEC has exactly 180 days to report all their findings from the so-called “study” to Congress. The SEC then has 18 months to “revise its rules consistent with such study, including, if warranted to prohibit or limit the payment for order flow.” The bill goes on to say the SEC may end the study early and issue rules to limit, regulate or prohibit payment for order flow if the Commission finds such a rule necessary in the public interest for the protection of investors. 

In other words, the ban is not off the table… yet. 

The move by the committee to study PFOF came after lobbying by Robinhood and other Wall Street firms. They provided committee members with evidence that trading has never been cheaper and more democratized since discount brokers have engaged with third-party brokers to sell their order flow, according to people with knowledge of the matter.  

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While the final committee bill has received some coverage, details of the bill, including committee members opting for a study as opposed to an outright ban amid the lobbying, have yet to be reported.  

Shares of Robinhood popped more than 5% when FOX Business first aired these details on Friday. 

A Robinhood spokesman had no comment. Press officials for the SEC and the Financial Services Committee didn’t return calls for comment. 

The lobbying underscored how underserved communities – middle-class people of all races – and a new generation of millennial investors are now trading stocks and benefiting from stock market gains that traditionally had been reaped by the richest Americans, people familiar with the matter say. 

The pushback from Robinhood forced GOP committee members and moderate Democrats to embrace the watered-down bill, these people say, and the resulting legislation shows that any attempt by Gensler to push for major changes in PFOF would likely face congressional resistance.  

It’s also unclear if House Speaker Nancy Pelosi, D-Calif., will even introduce the legislation to the full House, the sources added. 

Investors believe that’s great news for Robinhood, the upstart no-fee brokerage firm and app that just became a public company last month. Many discount brokers like Schwab have diversified business models but Robinhood’s business relies on trading more than other discount firms. 

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PFOF was responsible for a whopping 81% of Robinhood’s total revenue in the first quarter of this year. 

In fact, fears of a PFOF ban dampened appetite for Robinhood’s IPO among large, institutional investors, FOX Business has reported. 

Democrats on the House Financial Services Committee have been eyeing a ban on PFOF since the historic meme stock frenzy in January, and after criticism by Gensler. 

At the time, Gensler said PFOF could create conflicts of interest for customers and brokerages. Firms like Robinhood might be incentivized to send order flow to third-party brokers based on a business relationship rather than best execution. 

Brokerages, meanwhile, could gain an information advantage in trading knowing where retail order flow is headed. 

For these reasons, PFOF is currently banned in the United Kingdom and Canada; Gensler said the SEC would study whether similar bans could be applied in U.S. markets.   

Robinhood and the third-party brokers deny those allegations and at least initially those denials were mostly ignored. 

According to an initial draft of the House bill, an amendment to the Securities Act of 1933 would not make it “unlawful to solicit, receive or provide payment for order flow (as such term is defined under section 240.10b-10(d)(8) of title 17, Code of Federal Regulations, on the date of enactment of this subsection) that consists of a monetary payment, service, property, or other benefit that results in remuneration, compensation, or consideration to a broker or dealer…”  

Sherman, who also introduced the bill in its current form, has been a vocal skeptic of the PFOF model. In February, during hearings on the practices, he attacked Citadel Securities chief Ken Griffin, alleging that PFOF somehow hides true costs of trading to retail investors.  

Griffin’s firm is one of the largest PFOF providers. During the heated exchange, he countered that the practice has saved retail investors billions of dollars over the years in contrast to other execution strategies, an argument that ultimately resonated with most members of the committee and resulted in the proposed legislation falling far short of a ban. 

A media official for Sherman didn’t return calls for comment. 

In December of 2020, the SEC reached a settlement with Robinhood, which paid $65 million for allegedly misleading investors about how it makes its money through PFOF. The company neither admitted nor denied wrongdoing. The SEC alleged customers lost millions by trading on Robinhood instead of with other brokers who could have given them better prices.   

With a ban of PFOF off the table, at least for now, shares of Robinhood have recovered from their initial offering price of $38 to close over $50 on Friday. Traders interviewed by FOX Business say they doubt Gensler will spend valuable political capital seeking a ban through a vote of the full commission that would upset his relationship with Congress. 

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“I say good luck with that one,” said Teddy Weisberg, founder of Seaport Securities. “It will be very hard or impossible to stuff that genie back into the bottle.” 

PYPL – Venmo raising and adding fees

Venmo will soon be adding fees for some previously-free services and hiking existing fees on others, the mobile transaction service informed its customers.

PayPal, the cash app’s parent company, also announced forthcoming increases in its own consumer and merchant fees.

Ticker Security Last Change Change %
PYPL PAYPAL HOLDINGS, INC. 292.76 -0.89 -0.30%

In an email to users last week, Venmo informed its customers that starting July 20, “users who receive payments that are identified by senders as for goods and services will be charged a seller transaction fee of 1.9% + $0.10.” Such transactions have thus far been free on Venmo except for credit card transactions, which carry a 3% charge on the service.

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The company further informed users that its current fees for instant transfers to bank accounts would also be going up soon. Starting Aug. 2, the charge for an instant transfer estimated to take 30 minutes or less will be 1.5% with a minimum fee of $0.25, and a maximum of $15. The current instant transfer fees are at 1% with a $10 maximum. However, slow transfers, which typically take around one to three business days, will remain free on the app.

PayPal explained in a press release that the new ability for users to tag items as “goods and services” on Venmo means those transactions will also be covered by Venmo’s Purchase Protection Program. Fees are paid by the seller.

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Meanwhile, PayPal itself is hiking its own customer and merchant fees come Aug. 2, when the payment giant will charge 3.49% plus another $0.49 on most transactions. That is up from the current standard fees of 2.9% plus $0.30.

Fast Company‘s Arianne Cohen pointed out that competitors Apple Pay and Google Pay do not charge transaction fees.

FMCC – Fannie Mae and Freddie Mac may be pilfered by government, Mark Calabria says

Mark Calabria, former director of the Federal Housing Finance Agency (FHFA), on Friday suggested that the government could pilfer Fannie Mae and Freddie Mac if they don’t move completely into the private sector.

His comments came after President Biden decided to remove Calabria from his position following a Wednesday U.S. Supreme Court decision that found the structure of the FHFA, which was created in 2008 and oversees Fannie Mae and Freddie Mac, violates the Constitution’s separation of powers principles, which divides the government into three separate branches.

“We need to get these companies acting like normal companies again,” Calabria said Friday on Fox Business’ “Kudlow” of Fannie and Freddie, noting that then-Senators Barack Obama and Joe Biden voted to make FHFA an independent agency see it taken “out of politics.” 

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“There’s a smart way to expand homeownership. That’s growing incomes. That’s growing jobs,” he continued. “And there’s a crazy way. That’s getting rid of lending standards, getting rid of down payments, and to me, that’ll be destructive to the very families who will get those mortgages. It’ll be destructive to those communities.” 

During 2019 and 2020, under Calabria’s leadership, the FHFA recorded the largest increase in annualized homeownership among Black Americans, he said.

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Supreme Court justices sent the case involving the agency overseeing the mortgage giants back to a lower court for additional proceedings.

Shareholders of the two companies had argued that the FHFA’s structure was unconstitutional and that the justices should set aside a 2012 agreement under which the companies have paid the government billions. That money is compensation for the taxpayer bailout that Fannie Mae and Freddie Mac received following the 2008 financial crisis.

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The justices didn’t go that far in their decision.

The “FHFA’s structure violates the separation of powers, and we remand for further proceedings to determine what remedy, if any, the shareholders are entitled to receive on their constitutional claim,” Justice Samuel Alito wrote for a majority of the court.

Calabria’s firing will halt his “recap and release” plan that includes ending efforts to take the mortgage outfits out of government control, or conservatorship, and scrap a massive public offering that would allow the so-called government-sponsored enterprises or GSEs to operate as private companies.

Fox News’ Jonathan Garber, Charles Gasparino and Lydia Moynihan contributed to this report.

CCL – Carnival CEO: Cruise demand exceeds supply

Carnival Corporation CEO Arnold Donald says customers are cruising back to the company’s ships with demand exceeding current supply as they set sail from the U.S. again for the first time after a hiatus brought on by the coronavirus pandemic.

Ticker Security Last Change Change %
CCL CARNIVAL CORP. 28.13 +0.67 +2.44%

Donald joined FOX Business’ “The Claman Countdown” Friday to discuss Carnival’s resumption of departures from the U.S. starting early next month, beginning with the “Vista” setting sail from Galveston to the western Caribbean on July 3.

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And he said pandemic fears are fading. 

“Honestly, people are chomping at the bit to cruise again. We do not have an issue with being able to fill the ships. People are ready to sail and they know the long history of the cruise industry” he added “In fact, we have far more demand than we have ships available to supply right now.”

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Donald pointed out that his company continued cruises in Europe during the pandemic prior to vaccines becoming available, but limited the capacity of the ships to allow for social distancing. He noted that of the 400,000 or so guests that sailed Carnival lines abroad during the pandemic, there were less than 50 coronavirus cases on board the ships.

Earlier this week Carnival Corporation reported losing $2.1 billion during the second quarter due to pandemic shutdowns but saw booking volumes for future cruises jump 45% from the previous quarter. Meanwhile, cumulative bookings for 2022 are already ahead of bookings from 2019, which was a strong year.

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All told, Carnival says 42 ships equating to more than half its fleet spanning nine brands have either resumed sailing or have announced that they will by the end of November.

Carnival stock closed up more than 2% at $28.10 a share on Friday and has seen a gradual rise in 2021 as the firm climbs back from a 2020 low of just $8.49.

AMZN – Amazon Prime Day powers biggest day for online spending

Online spending in the U.S. hit a one-day record high for the year on Monday, driven by the first of Amazon’s two-day Prime Day sale events, according to the Adobe Digital Economy Index.

Ticker Security Last Change Change %
AMZN AMAZON.COM, INC. 3,505.44 +51.48 +1.49%

The commerce platform reported that total online sales surpassed $5.6 billion on June 21, making it the biggest day for online spending to date for 2021. But Amazon was not the only online retailer raking in the dough, as other firms offered deals to compete with the e-tailing giant. 

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Walmart, Target, Best Buy and other retailers offered deals that overlapped with the 48-hour Prime Day event.

Ticker Security Last Change Change %
WMT WALMART, INC. 137.03 +0.63 +0.46%
TGT TARGET CORP. 237.21 +3.44 +1.47%
BBY BEST BUY CO., INC. 111.04 +2.36 +2.17%

Large online retailers with more than $1 billion in annual revenue saw a 28% boost in sales during Prime Day’s initial 24 hours, while retailers showing less than $10 million experienced a 22% increase.

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“First day of Amazon Prime Day delivered effective gains for both large and small retailers while also becoming the biggest online shopping day in the U.S. so far this year at $5.6 billion,” Adobe Vice President Jason Woosley said in a statement. “Overall, the first day of Prime Day successfully accelerated spending momentum for U.S. e-commerce to new heights, in an online retail environment that is already experiencing an elevated level of growth due to the pandemic.”

Prime Day extended through Tuesday, with Amazon offering Prime members deals on more than 2 million items across all product categories. 

Final sales numbers will be available later in the week. 

TSLA – Burry of 'The Big Short' has bet against Tesla: report

Michael Burry, the investor who was played by actor Christian Bale in the 2015 movie, “The Big Short,” is apparently bearish on Tesla after it was revealed that his asset management company owned short positions against shares of the carmaker as of March 31, reports said. 

Bloomberg reported that Elon Musk’s car company is down about 35% from its peak on Jan. 26, after an explosive year in 2020. The report said it is impossible to know when Scion Asset Management purchased the long puts against 800,100 shares of Tesla.

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The position was worth about $534 million, the news site reported, citing a regulatory filing.

Neither company responded to an after-hours email from Fox News.

Steve Sosnick, a chief strategist at Interactive Brokers LLC., told Bloomberg that Burry seems to be “expressing the type of skepticism that many have on Tesla.”

“I would have to believe that he accumulated various Tesla options at various strikes, and some of them probably have expired,” he said.

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Tesla last month posted its seventh-straight profitable quarter.

The company made $438 million in the three-month period that ended March 31, as sales more than doubled the same period last year to nearly 185,000 vehicles.

Tesla said adjusted net income, excluding stock-based compensation, passed $1 billion for the first time in company history.

The Associated Press contributed to this report

GME – GameStop's CEO is getting millions on his way out. He's not the only one.

It is a lucrative time to be leaving GameStop Corp.’s C-suite as the run-up in the videogame retailer’s share price has enabled four executives to depart with vested stock now valued at roughly $290 million.

Separation agreements between GameStop and the four executives, including Chief Executive Officer George Sherman, have provisions that let stock awarded during their tenure to vest when they leave. While such a handling of leadership transitions isn’t atypical, it does potentially allow the executives to sell their shares near GameStop’s historically high levels.

Ticker Security Last Change Change %
GME GAMESTOP 151.18 +0.01 +0.01%

GameStop’s shares closed Friday at $151.18. They hit an intraday peak of $483 in late January after ending 2020 at just below $19.

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The fortunes the executives stand to gain, based on a Wall Street Journal analysis of recent GameStop securities filings, reflect the rapid and unusual rise in the company’s market value as it became a darling of individual investors and the focus of a turnaround steered by activist investor and Chewy Inc. co-founder Ryan Cohen. Three of the four executives joined the company in 2019.

GameStop has said that Mr. Sherman will step down by July 31 and that it is searching for his replacement. His exit agreement calls for the accelerated vesting of more than 1.1 million GameStop shares, according to filings, valued at roughly $169 million as of Friday’s close.

Mr. Sherman’s severance pay could have been higher. According to his separation agreement and GameStop’s recent proxy filing, the CEO agreed to give up at least $5 million in cash, stock valued at roughly $47 million as of Friday, and additional equity awards. No reason was given for the changes, and Mr. Sherman declined to comment.

As of mid-April, Mr. Sherman held a roughly 2.4% stake in the company, making him one of the largest individual shareholders.

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Restricted shares held by former GameStop finance chief James Bell vested April 1, according to the proxy filing. Those shares were valued at $43.6 million as of Friday. The company didn’t cite a reason for Mr. Bell’s departure, though the Journal reported that he was pushed out of the role by Mr. Cohen, according to people familiar with the matter.

Frank Hamlin, who resigned as chief customer officer last month, had restricted shares that vested April 7 and were valued at $33.5 million as of Friday.

Chris Homeister, who plans to resign as merchandising chief because of diminished responsibilities, has nearly 289,000 shares due to vest in connection with this exit. Those shares were valued at around $43.6 million as of Friday.

Messrs. Bell, Hamlin and Homeister could earn additional shares under their employment agreements based on the company’s performance this year, according to GameStop filings.

Mr. Bell declined to comment. Messrs. Hamlin and Homeister couldn’t be reached for comment.

Granting shares as part of compensation packages is a longstanding practice intended to align executives’ interests with shareholders’ interests. As a company’s performance or outlook improves, the thinking goes, share prices should rise, and both executives and shareholders benefit.

NEW YORK – NEW YORK – MARCH 23: People wait to cross the street in front of GameStop at 6th Avenue on March 23, 2021 in New York. GameStop stocks falls more than 10% after the video game store showing strong earnings but lower than expected. (Photo b

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Big payouts for departing executives, especially longtime ones, aren’t unusual. Former T-Mobile US Inc. boss John Legere collected more than $137 million in compensation in 2020, according to a securities filing Wednesday. Most of that came from the then-chief executive’s severance payment after more than seven years atop the telecommunications company, as well as equity that vested early upon his departure and bonuses tied to the company’s successful completion of its merger with Sprint Corp.

Mr. Sherman’s compensation for the 2020 fiscal year was valued at $7.2 million, most of which came from stock awards, according to a proxy filing. That figure includes about $1.5 million in shares that Mr. Sherman is giving up under his departure agreement. His total compensation in the prior year was $12.4 million, the first year he served as CEO.

The payouts for Messrs. Sherman and Legere reflect a broader trend of CEO compensation surging in 2020. Median pay for the chief executives of more than 300 of the biggest U.S. public companies reached $13.7 million last year, up from $12.8 million for the same companies a year earlier and on track for a record, a recent Journal analysis concludes.

Ticker Security Last Change Change %
SONY SONY GROUP CORP. 109.94 +1.00 +0.92%
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MSFT MICROSOFT CORP. 261.15 +3.98 +1.55%

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Mr. Sherman joined GameStop in April 2019, a few months after the company failed to find a buyer. He became the company’s fifth CEO since 2017 and pledged to turn the retailer around. During his tenure, GameStop was able to reduce its costs and debt, but the business has struggled. Revenue fell to nearly $5.1 billion in the year ended Jan. 30 from $6.5 billion in the prior year. Losses topped $686 million in the past two fiscal years combined.

To improve its outlook, the company last month tapped Mr. Cohen, former boss of online pet-supplies company Chewy, to head a committee dedicated to making the business more tech-centric by focusing more on e-commerce. Mr. Sherman recently said he expects GameStop to benefit from plans to expand the company’s product selection to make it less dependent on the releases of new game consoles from the likes of Sony Group Corp. and Microsoft Corp.

AMC – AMC CEO says shareholders asked to approve up to 500 million shares

Movie theater chain AMC is celebrating coming through the coronavirus pandemic after nearly losing everything.

CEO Adam Aron told FOX Business Network’s “The Claman Countdown” Monday that the company has asked its shareholders to approve up to 500 million shares, even though there is no intention of using them all at this time.

ARON: “When I look back over this pandemic, the thing that I’m most proud of is that AMC survived. There are a lot of people who wrote our company off. We raised almost $4 billion in debt, equity and concessions from lenders and theater landlords. And we’ve asked our shareholders to approve up to another 500 million shares, not that we would use any amount like that any time soon. But we’re going to make sure – AMC was a very successful company for 100 years – we’re going to make sure that AMC theaters is around and is a very successful company for the next 100 years …

“When ‘Godzilla vs. Kong’ opened Wednesday of last week, our business at AMC was five times, quintuple, what we’ve done in all the weekends before that … And we take that as a very good sign, we think that’s a combination of new movie titles coming out and vaccinations, and let us not underestimate how vaccinations are changing the psyche of American consumers.”

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