Home screen of Robinhood website
Photographer: Gabby Jones / Bloomberg
Photographer: Gabby Jones / Bloomberg
Robinhood Markets, the trading app popular with investors behind this month’s wildest stock swings, has withdrawn some of its lines of credit from banks, according to knowledgeable people.
The company has tapped at least several hundred million dollars, one said. The company’s lenders include JPMorgan Chase & Co. and Goldman Sachs Group Inc. data collected by Bloomberg. Representatives from Robinhood and those banks declined to comment.
The behind-the-scenes rush to bolster Robinhood’s finances adds to signs that the recent market disaster is straining the company, which has signed up crowds of private investors for its app during the pandemic. The company is one of the brokers who trade in shares of GameStop Corp. and AMC Entertainment Holdings Inc. caused outrage among customers on Thursday. Robinhood also told users it may close some of their positions as it is taking steps to mitigate account risk.
“As a brokerage firm, we have many financial requirements, including SEC net capital liabilities and clearinghouse deposits,” Robinhood said in a statement. blog post Thursday. “Some of these requirements fluctuate based on the volatility in the markets and can be significant in the current environment. These requirements are there to protect investors and the markets and we take our responsibilities to meet them seriously, including through the measures we have taken today. “
The extreme volatility “generated significant risk” for brokers and imposed more stringent requirements on those firms, according to Wall Street clearinghouse DTCC.
“When volatility increases, so do the portfolio’s margin requirements,” said the Depositary Trust & Clearing Corp. in a statement by e-mail.
Read more: Reddit Stock Mayhem ‘Generated Substantial Risk’ for brokers
With its easy-to-use app and commission-free trades, Robinhood has grown rapidly in recent years and even more so during the pandemic, becoming the platform of choice for legions of people turning to the stock market to make money and spend time during lockdowns. The company has been expected to launch an IPO this year for months.
But this month’s drama surrounding a price increase for GameStop and AMC, coordinated by investors on Reddit, has placed Robinhood at the center of controversy. The company said on Thursday following the close of US trading that it will allow the resumption of “limited purchases” in certain affected securities.
Robinhood has previously leaned on its bank credit to weather turmoil. In March, the firm attracted an entire $ 200 million facility from a trio of lenders, people familiar with the case at the time said, when the coronavirus pandemic triggered a spate of trades and steep market swings, interrupting Robinhood’s trading platform repeatedly.
– With the help of Misyrlena Egkolfopoulou
(Updates with clearinghouse comments from the fifth paragraph.)