Robinhood says it cannot assure investors a meme mania won’t hit it again

Buying and selling info for GameStop is displayed on the Robinhood App as one other display shows the Robinhood emblem on this picture illustration January 29, 2021.

Brendan McDermid | Reuters

Robinhood stated Thursday that the primary time Robinhood restricted buying and selling on its app — in the course of the GameStop occasion earlier this 12 months — might to not be the final.

In January, when an epic brief squeeze erupted in GameStop’s inventory partially pushed by retail merchants, Robinhood shut down buying and selling of sure meme shares on account of elevated capital necessities from its clearinghouses. Regardless of elevating north of $3.4 billion in a number of days to shore up its steadiness sheet, the brokerage restricted buying and selling of GameStop, AMC Entertainment and different Reddit darlings.

“We can not guarantee that related occasions is not going to happen sooner or later,” Robinhood stated in its S1 submitting to the Securities and Alternate Fee.

As a brokerage, Robinhood has monetary necessities to the clearinghouses that execute its purchasers trades, and a few of these necessities fluctuate based mostly on volatility within the markets. The volatility in January pressured hikes in necessities and brought about a flurry of outraged prospects, many who threatened to go away the app.

“This resulted in adverse media consideration, buyer dissatisfaction, litigation and regulatory and U.S. Congressional inquiries and investigations, capital elevating by us so as to carry the buying and selling restrictions whereas remaining in compliance with our internet capital and deposit necessities and reputational hurt,” Robinhood stated within the submitting.

Robinhood CEO Vlad Tenev blamed the two-day commerce settlement, referred to as T+2, for a few of the clearinghouse deposit points in the course of the GameStop mania and called for real-time settlement.

“The prevailing two-day interval to settle trades exposes buyers and the trade to pointless danger and is ripe for change,” Tenev stated in a testimony to the House Financial Services Committee following the GameStop drama.

“The clearinghouse deposit necessities are designed to mitigate danger, however final week’s wild market exercise confirmed that these necessities, coupled with an unnecessarily lengthy settlement cycle, can have unintended penalties that introduce new dangers,” he stated.

The buying and selling mania revived final month as Reddit merchants continued to pile into their favourite meme shares together with GameStop, AMC Leisure and others. AMC is up 2,400% this 12 months.

Robinhood is expected to go public on the Nasdaq under ticker “HOOD” this year. The free-trading pioneer skilled document development previously 12 months leading to 18 million accounts and $80 billion in buyer property.

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