FTX is on the lookout for brokerage start-ups. As the crypto exchange expands into stocks and FTX’s CEO takes a significant stake in Robinhood.
According to sources familiar with the negotiations, at least three private trading start-ups were approached by the Bahamas-based company about an acquisition. One source claimed that the discussions were still in their early stages and didn’t result in a term paper.
Sources said that FTX spoke to Webull, Apex Clearing, and Public.com in the recent months. CNBC declined to comment on the requests from Apex, Webull and Public.com. FTX did not respond to a request for comment.
This move is in response to investors holding both stocks and crypto, and brokerages looking to offer these assets under one roof. Robinhood has shifted its business model from stocks to cryptocurrencies. SoFi, Block and other fintechs now offer both.
Last week, FTX stated that it would be making a move to equities. In an effort to attract more customers, it plans to offer U.S. commission-free trading.
‘The U.S. has the largest retail base in world, so you don’t want two apps to trade different asset classes.’ Brett Harrison, president at FTX U.S. spoke to CNBC last week. “This is not a revenue-generating model for us. It’s more of an acquisition strategy.
FTX has made strategic investments in this space. In April, FTX bought a stake at IEX group, the largest stock exchange operator. Earlier in May, FTX CEO Sam BankmanFried bought a 7.6% share in Robinhood. This has fueled speculation that the crypto company might be considering an acquisition. Robinhood shares have fallen more than 85% from their peak around the initial public offer last summer.
A regulatory filing stated that Bankman-Fried views Robinhood as an “attractive investment” with no plans to purchase it or make changes at the company. However, some people were skeptical about the paperwork. The SEC filing was a13D and is usually used by activist investors. Passive investors would typically file a 13G.
Robinhood’s takeover without founders’ approval may prove difficult. Robinhood’s dual-class structure gives Vlad Tenev, CEO of Robinhood, and Baiju Bhatt, co-founder, more than 60% of the voting rights.
Analysts expect more consolidation in this space, with fintech stocks falling from their all-time highs, and private valuations shrinking.
Devin Ryan, JMP Securities director of financial technology research, stated that many in the industry have a lot of cash and that strategic acquisitions can help accelerate growth. Therefore, we anticipate strong demand. “We anticipate buyers will seek targets that can add product capability and expertise, increase customer footprint, expand customer base as customer acquisition costs rise, or simply add talent to a competitive landscape.