Robinhood Raises $1 Billion; Eases Trading Restrictions on GameStop

137
SHARE
Robinhood
Robinhood

Robinhood Markets Inc. raised more than $1 billion in emergency funds to help cope with the extraordinary trading and excitement in heavily-shorted stocks such as GameStop Corporation (NYSE: GME) and AMC Entertainment Holdings (NYSE: AMC).

The online trading platform used credit lines to strengthen its balance sheet and remove its restrictions in the trading of GameStop and other volatile stocks. It is popular among young traders including those who are informed about stocks through Reddit forums such as the r/WallStreetBets.

The Reddit-charged day traders ganged up together and helped propel the stock prices of GameStop, AMC, BlackBerry, and other companies. Billionaire Chamath Palihapitiya also contributed to the parabolic rise in the stock price of Gamestop.

Signup for the USA Herald exclusive Newsletter

In an interview with CNBC, Robinhood CEO Vlad Tenev denied that the company has a liquidity issue. He explained that the company tapped its credit lines to allow investors trade with fewer restrictions.”

“By drawing on our credit lines which we do all the time as part of normal day-to-day operations, we get more capital that we can deposit with the clearinghouses and that will allow us to enable ideally more investing with fewer restrictions,” said Tenev.

On Thursday, Robinhood temporarily restricted trading on GameStop and other heavily-shorted stocks to meet financial requirements such as clearinghouse deposits based on the volume of trades.

The company suffered a strong backlash from Reddit-charged day traders and U.S. lawmakers for its decision to freeze stock trading in GameStop and other companies.

In a statement late on Thursday, Robinhood explained, “We made a tough decision today to temporarily limit buying for certain securities. As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment.” 

On Friday, Robinhood resumed trading in the shares of GameStop and other companies. However, investors could only increase their GameStop position by five shares.  For other traders whose current positions in the stock exceed the limit, the company won’t force them to sell but they won’t be able to buy more.

Right now, there is a trading war between Reddit-charged day traders and short-sellers who are betting against GameStop. Short-sellers already lost billions of dollars from their bets against the company’s stock.

The stock price of GameStop is up again by more than 67% to $325 per share on Friday.

Reasons behind Robinhood move

Since 2013, Robinhood has worked on making investing in stocks and other assets more accessible. However, the complicated process behind each trade made it harder for the company to control the growing number of trades. In return, customers felt betrayed by Robinhood’s decision to halt trading on Thursday — the company suggests that customers are not aware of the hurdles that the company is facing.

Representative Alexandria Ocasio-Cortez described the move as unacceptable. She called for a congressional investigation into the matter.

On the other hand, the Securities and Exchange Commission (SEC) said that it would review Robinhood’s actions and other brokerage firms that restricted the trading this week.

Mr. Tenev commented: “The irony isn’t lost on me that we’re in some ways having the opposite type of conversation than we typically had. Up until about a month ago, it was, ‘Are there too few barriers?’…Now it’s all about, ‘Why did you guys put these restrictions?’ It’s a strange situation.”

Angry traders launch a one-star rating campaign

Robinhood has been growing in popularity lately — the company ranked as the top free app in Apple’s app store on Wednesday.

Meanwhile, the company only had a one-star rating on Google Playstore. Outraged traders launched a campaign to leave Robinhood app with a one-star rating on Google Play Store. However, Google deleted the negative reviews and Robinhood’s app is back to four stars.

In a tweet, Vlad Tenev said,  “We cannot control, however, the lightning-fast spread of information and misinformation that takes place on social media, and for that, I am incredibly sorry to our customers and staff for this.”

Have a story you want USA Herald to cover? Submit a tip here and if we think it’s newsworthy, we’ll follow up on it.

Want to contribute a story? We also accept article submissions – check out our writer’s guidelines here.