Robinhood

Robinhood customers aren’t so merry. 


James Martin/CNET

The hate for Robinhood continues after it determined to freeze trades for GameStop final Thursday when Wall Street was in a frenzy for the online game retailer’s stock. The in style buying and selling app was one among the main instruments for particular person buyers who jumped on the GameStop curler coaster, which despatched shares up by greater than 14,300% final week however has since plummeted to lower than $53.50 as of Thursday’s closing bell. As a lot as Robinhood contributed to the stock’s features, it is also drawn flak from customers, Wall Street and the US authorities for the way it dealt with the exercise. 

Robinhood performed a vital position when a gaggle of Reddit posters noticed a chance to make cash whereas additionally giving a jab to Wall Street and hedge funds. However, Robinhood then slowed the stratospheric rise in GameStop and different corporations when it restricted customers from shopping for sure shares. It reversed that call the subsequent day and posted on its weblog about what occurred in all that stock buying and selling

In brief, rules required it to have a sure sum of money available to cowl stock trades, and it merely did not have sufficient at the time. While Robinhood customers are in a position to commerce shares of GameStop and different corporations with unstable costs, there are nonetheless questions about the occasions of final week, together with whether or not one thing like that can occur once more. 

We have some solutions for the massive questions about Robinhood, the actions it took and what may occur subsequent. 


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What is Robinhood? 

Robinhood is an investing app that launched in 2015. It’s popular among millennials, who make up a majority of its users and can conduct a variety of investments for free. Read more about Robinhood here

What happened last week? 

On the morning of Jan. 28, Robinhood posted a blog saying it was limiting users by preventing them from buying stocks from several companies such as GameStop, AMC and Nokia. It cited “market volatility” as its reasoning and would only allow customers to sell their shares of these companies, not buy or trade in any other way (more below). 

“In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK,” Robinhood said. In addition to AMC; Bed, Bath and Beyond; GameStop and Nokia, the companies that Robinhood listed by ticker symbol are phone maker BlackBerry, fashion retailer Express, headphone maker Koss and underwear company Naked Brand Group.

Why did Robinhood stop customers from buying GameStop shares? 

On Friday, Robinhood posted another blog about what happened. The company explained it was required to keep a substantial amount of money on hand in order to process all the trades happening through its clearinghouse, which is the part of the company that sends shares and money back and forth to other clearinghouses to complete trades. 

Robinhood CEO Vlad Tenev went into more specifics Sunday night when he jumped on the Good Time Show with Tesla CEO Elon Musk via the exclusive audio-only Clubhouse app

“At 3:30 a.m. Pacific, our operations receives a file from the NSCC, which is the National Securities Clearing Corporation,” he said during the show. “So they gave us a file with a deposit, and the request was around $3 billion, which is about an order of magnitude more than it typically is.” 

Tenev provided some context by saying that, up to that point, Robinhood had raised just $2 billion in capital. He went on to explain that the NSCC has a formula to determine how much a deposit it needed and one component of it involved risk, which can act as a kind of multiplier. 

“We had no choice in this case,” he said. “We had to conform to our regulatory capital requirements.” 

Tenev said that since then, the agency has worked with Robinhood to decrease the amount of funds needed. The company also raised $1 billion in emergency capital to make sure customers’ trades can happen. 

When Robinhood let investors trade GameStop shares again?

Robinhood sent an email to customers in the afternoon of Jan. 28 saying it would allow “limited buys” of those company stock starting Friday. The limits included a maximum number of shares users could own (at one point it was down to one GameStop share), no trading options, no borrowing money on credit also known as margin, recurring investments were skipped and no fractional shares, which are slices of a stock that can be bought for as little as a dollar. 

As of Wednesday, Robinhood increased the maximum of shares allowed for all the companies, with GameStop’s limit up to 500 shares total. The other restrictions are still in place. 

Who mad at Robinhood? 

A ton of people. The subreddit behind the GameStop’s skyrocketing share value, r/WallStreetBets, includes big users of Robinhood who felt they were slighted by the decision. 

The subreddit’s Twitter account said the freeze harmed small traders and favored the Wall Street establishment. “Individual investors are being stripped of their ability to trade on [the Robinhood app],” the tweet mentioned. “Meanwhile, hedge funds and institutional investors can continue to trade as normal.”

Robinhood customers flooded the Google Play Store and Apple’s App Store with unfavorable app critiques. There had been so many one-star scores that Google intervened to take away tens of 1000’s of them

There’s was additionally a lawsuit filed on Jan. 28 in the Southern District of New York accusing Robinhood “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise … deprived retail investors of the ability to invest in the open-market.”

Several members of Congress, together with Rep. Alexandria Ocasio-Cortez, Rep. Rashida Tlaib and Sen. Ted Cruz, known as for a listening to on Robinhood’s actions. 

The New York lawyer basic says she is going to assessment what Robinhood did whereas the Texas lawyer basic launched an investigation on Friday. 

And the US Securities and Exchange Commission, which oversees the stock market, launched an announcement Friday that did not identify Robinhood however mentioned it should “closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.” 

SEC investigators are already reviewing social media and Reddit posts for any indicators of fraud in accordance with a report from Bloomberg Wednesday. The fee can even meet with newly appointed Treasury Secretary Janet Yellen, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission this Thursday to debate the market volatility surrounding GameStop as reported on Wednesday by Reuters

Rep. Maxine Waters, a Democrat from California and chairwoman of the House Financial Services Committee, mentioned Wednesday the committee may have a listening to to know what occurred in the previous week. 

“We are going to have all the players. We will have not only [from] Robinhood, Vladimir Tenev, we’ll have him there,” Rep. Waters advised Cheddar on Wednesday. “We’ll have the young man from Reddit, his name is Keith Gill, who basically started this mania, we will hopefully have some hedge fund representation there. We’re going to make sure that we’re not taking sides.”

Lawmakers and regulators already had a watch on Robinhood final 12 months after a 20-year-old school pupil killed himself after increase a unfavorable stability of $73,000 on the app. 

What different investing providers restricted trades at the identical time as Robinhood? 

Other investing apps and providers additionally had points with clearing trades much like Robinhood. Cash App tweeted Tuesday it is not going to course of trades for AMC and Nokia as a result of their dealer, Axos, halting trades. 

“The clearing dealer who processes our trades, Axos, has briefly halted buys of $AMC & $NOK,” the firm tweeted. “This was not Cash App’s decision — we disagree with this move wholeheartedly. We hope to make these stocks available for purchase again as soon as possible.”

A Cash App weblog submit defined additional saying that the Depository Trust Company (DTC) knowledgeable Axos on Monday it could have to considerably improve capital necessities for the trades it could be processing. 

Webull is one other investing app that tweeted Jan. 28 it had begun proscribing trades on shares of GameStop, AMC and Koss. Webull cited the “extreme volatility” of the shares in limiting consumer transactions to closing positions. It later eliminated these restrictions the identical day. Webull CEO Anthony Denier mentioned the firm’s clearing agency additionally obtained discover it could want to extend its capital necessities considerably as a way to accommodate all the trades, which led to the short-term halt in buying and selling on these unstable shares. 

TD Ameritrade, one other brokerage, mentioned Jan. 27 it could put restrictions on the buying and selling of shares for GameStop, AMC and others. The brokerage agency confirmed the restrictions, saying it made the choices “out of an abundance of caution amid unprecedented market conditions and other factors.” The limits included growing the quantity wanted to borrow on margin and limiting different commerce choices reminiscent of brief gross sales. 

Charles Schwab, Interactive Brokers, E-Trade and Public had been different investing providers that additionally restricted buying and selling final week due to market volatility. 

Correction, Jan. 28: An earlier model of this story incorrectly mentioned TD Ameritrade had restricted new purchases of GameStop and AMC shares. It’s proscribing sure trades, however customers are nonetheless in a position to buy new shares from these corporations. 

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