Online brokerage Robinhood just paved the way for expansion by getting rid of a key middleman.
The fintech start-up, famous for its zero-fee trading platform, spent the past two years building an independent clearing system that will allow it to settle and clear transactions and provide custody for assets, the company announced Wednesday.
"It's the only system that has been built from scratch on modern technology in the past decade," co-CEO and co-founder Vlad Tenev told CNBC in a phone interview. "It's a huge investment in the future of Robinhood."
About seventy Robinhood employees based in Lake Mary, Florida, quietly built the "Clearing By Robinhood" technology from scratch, and worked on getting necessary regulatory approval. To do so, the company formed a new entity called Robinhood Securities in 2016 and received regulatory approvals from the Financial Industry Regulatory Authority, the Depository Trust & Clearing Corp. and the Options Clearing Corp.
Clearing is the trusted transfer of securities and funds between the buyer and seller, an essential function on Wall Street. Some other online brokers are self-clearing, meaning that they have their own clearing firm, while others rely on a third party to clear the transactions. E-Trade, TD Ameritrade, Charles Schwab and Vanguard are among those that already self-clear.