Robinhood says he can’t assure investors the meme mania won’t hit him again

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Trading information for GameStop is displayed on the Robinhood app while another screen displays the Robinhood logo in this photo illustration on January 29, 2021.

Brendan McDermid | Reuters

Robinhood said Thursday that the first time Robinhood restricted trading on its app – at the GameStop event earlier this year – might not be the last.

In January, when an epic short squeeze erupted in GameStop stocks in part due to retail traders, Robinhood shut down some stock trading even due to increased capital requirements from its clearinghouses. Despite raising $ 3.4 billion in a few days to consolidate its balance sheet, the brokerage has limited trading from GameStop, AMC Entertainment and other Reddit darlings.

“We cannot guarantee that similar events will not occur in the future,” Robinhood said in its S1 filing with the Securities and Exchange Commission.

As a brokerage firm, Robinhood has financial requirements on the clearing houses that execute its clients’ trades, and some of these requirements fluctuate with market volatility. January’s volatility forced an increase in requirements and sparked a wave of outraged customers, many of whom threatened to quit the app.

“This has resulted in negative media attention, customer dissatisfaction, litigation, and regulatory and US congressional inquiries and inquiries, raising capital on our part to lift trade restrictions while remaining compliant with our requirements. of net and deposit capital and our reputation, ”Robinhood said in the deposit.

Robinhood CEO Vlad Tenev blamed the two-day trade settlement, known as T + 2, for some of the clearinghouse deposit issues during the GameStop mania and requested real-time settlement.

“The current two-day period for settling transactions exposes investors and the industry to unnecessary risk and is ripe for change,” Tenev said in testimony to the House Financial Services Committee in the wake of the GameStop drama.

“The clearinghouse filing requirements are designed to mitigate risk, but the wild market activity over the past week has shown that these requirements, coupled with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks, ”he said.

The commercial mania picked up again last month as Reddit marketers continued to pile up on their favorite memes stocks, including GameStop, AMC Entertainment, and others. AMC is up 2,400% this year.

Robinhood is expected to be made public on the Nasdaq under the headline “HOOD” this year. The free trade pioneer has experienced record growth in the past year, with 18 million accounts and $ 80 billion in client assets.

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