Crypto exchange FTX quietly shops for brokerage start-ups amid move into stock trading, sources say
Sam Bankman Fried, Chief Executive Officer of cryptocurrency exchange FTX at the Bitcoin 2021 Conference in Miami (Florida) on June 5, 2021.
Eva Marie Uzcategui | Bloomberg | Getty Images
FTX is on the lookout for brokerage companies to purchase as its crypto exchange grows into stocks. The CEO of FTX also takes a significant stake. Robinhood.
According to people familiar with the negotiations, at least three private trading companies were approached by the Bahamas-based company about an acquisition. One source claimed that the discussions had not led to a term sheet as they were still in their early stages.
According to sources, FTX had spoken with Webull Clearing, Apex Clearing and Public.com over the past months. CNBC declined to comment on the requests from Apex, Webull and Public.com. FTX has not responded to a comment request.
Investors increasingly own stocks and cryptocurrency, so brokerage houses are looking for ways to provide both. Robinhood is a company that offers crypto and stocks. pivotedThe company’s business model was no longer based on stocks but cryptocurrencies. SoFi, Block and other fintechs offer both.
Last week, FTX saidThe company would consider a shift into equity markets. To attract new customers, the company plans to offer U.S.-based commission-free trading.
In a telephone interview, Brett Harrison, President of FTX U.S. said that the U.S. boasts the largest retail market in the world. “You don’t want two apps for trading two asset classes and need to break it up into different apps.” This isn’t a revenue-generating strategy for us. It’s more about user acquisition.
FTX made several strategic investments in this space. In April, FTX bought a stake at IEX, the biggest stock exchange operator. Sam Bankman Fried was the FTX CEO earlier in May. tookRobinhood holds a 7.6% share, leading to speculation the company might be considering an acquisition. Robinhood shares have fallen more than 85% from their peak around last summer’s initial public offering.
Although a regulatory filing indicated that Bankman-Fried saw Robinhood “attractive” and had no plans of buying it, there were some questions about the paperwork. This filing, a 13D from the SEC, was typically filed by activist investors. Passive investors typically file a 13G.
Robinhood may still be difficult to takeover if the founders don’t approve. Robinhood’s dual class share structure allows CEO Vlad Tenev, and Baiju Bhatt (co-founder), to have more than 60% each of the voting votes.
Analysts anticipate more consolidation, as fintech stocks are expected to plummet from all-time highs. Private valuations will also be decreasing.
Devin Ryan from JMP Securities, Director of Financial Technology Research, stated that many in the sector are rich and can make strategic acquisitions to accelerate growth. Therefore, we anticipate strong demand. We expect that buyers will seek targets with product capabilities and experience, to increase customer reach as customer acquisition costs rise, or simply for talent.