Crypto exchange FTX quietly shops for brokerage start-ups amid move into stock trading, sources say

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Crypto exchange FTX quietly shops for brokerage start-ups amid move into stock trading, sources say

Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, at the Bitcoin 2021 conference in Miami, Florida on June 5, 2021.

Eva Marie Uzcategui | Bloomberg | Getty Images

FTX has been on the hunt for broker startups as the crypto exchange expands into equities, and their CEO is acquiring a large stake in Robinhood.

The Bahamas-based company has approached at least three privately held trading startups about an acquisition, according to sources familiar with those negotiations, who asked not to be named because the deal talks were confidential. The talks were early and have not resulted in a term sheet, a source said.

Webull, Apex Clearing and Public.com were among the companies FTX has spoken to in recent months, sources said. Webull, Apex and Public.com declined CNBC’s requests for comment. FTX has not responded to a comment request.

The move comes as investors increasingly hold crypto and stocks and brokerage firms seek to offer the assets under one roof. Robinhood has shifted its business model away from equities and toward cryptocurrencies, while SoFi, Block, and other fintechs now offer both.

Last week, FTX announced it would invest in stocks. It plans to offer commission-free trading in the US to attract more customers.

“The US has the largest retail base in the world and you don’t want to have to split into two different apps to trade two different asset classes,” Brett Harrison, president of FTX US, told CNBC in a phone interview last week. “This isn’t a revenue-generating model for us, it’s more of a user acquisition strategy.”

FTX has already made strategic investments in this area. In April, she took a stake in the IEX Group, one of the largest stock exchange operators. Earlier in May, FTX CEO Sam Bankman-Fried took a 7.6% stake in Robinhood, fueling speculation that the crypto company might be considering an acquisition. Robinhood’s stock has fallen more than 85% since hitting its all-time high around last summer’s IPO.

While a regulatory filing says that Bankman-Fried sees Robinhood as an “attractive investment” with no plans to buy it or push changes at the company, the paperwork raised some eyebrows. The SEC filing was a 13D typically used by activist investors. Passive investors would typically file a 13G.

Still, a Robinhood acquisition can be difficult without the blessing of the founders. Robinhood’s dual-tier stock structure gives co-founder and CEO Vlad Tenev and co-founder Baiju Bhatt more than 60% of the voting rights.

Analysts expect further consolidation in this area as fintech stocks tumble from all-time highs and some private valuations fall.

“Many in the industry are liquid and strategic acquisitions can accelerate growth, so we expect demand will remain strong,” said Devin Ryan, director of financial technology research at JMP Securities. “We anticipate buyers will seek destinations that add product capabilities and expertise, expand customer exposure as customer acquisition costs have increased, or simply add talent in a competitive hiring landscape.”