US-based online broker Robinhood was one of the hottest retail locations this week, but the sudden curbs of buying some hot stock has sparked the ire of customers, celebrities and politicians who argue that this is unfair for the better. comes to bigger investors.
The company has also tapped into a line of credit so it has money to ensure continuity of trade when it lifts the rules.
Robinhood Chief Executive Vladimir Tenev said on Thursday that trading in “about 13” viral stocks, including GameStop, AMC Entertainment and American Airlines, has been restricted to protect the company and its customers from volatility.
Those stocks fell Thursday, making up for the losses only after Robinhood said it hoped to lift the controls on Friday.
GameStop was up more than 40 percent on Thursday, temporarily pushing the stock above $ 500 a share. It’s up more than 1,700 percent this year, driving up retail sales across the board and throwing in the towel some short sellers – traders who bet a stock will fall.
[Bloomberg]
Tenev said on the US financial news network CNBC that the brokerage had tapped lines of credit “so that we could, within reasonable limits, maximize the money we need to deposit with clearing houses” to allow for more trading.
“We understand that our customers are angry, we are doing everything we can to make buying these names possible again,” he said. “We want to be clear in communication, and I think we should have got there a little earlier.”
While other companies, such as Interactive Brokers, also restricted trading, Robinhood’s free and easy-to-use app has made it popular with a new generation of small traders and its limitations led to the biggest backlash.
‘Keep your promise’
“Robin Hood? Nah y’all ROBBING the HOOD,” one user tweeted. “Crazy you’d rather see your business burn down than keep your promise to give users free trade,” said another.
Twitter users also complained that Robinhood appeared to be selling their stock without permission. Robinhood did not immediately comment on whether it had restricted sales, but Tenev said customers were allowed to sell, but not buy.
Two clients sued Robinhood Financial, seeking damages for stopping trading in a range of stocks.
The Bloomberg news agency reported that the broker has tapped at least several hundred million dollars from its lenders, including JP Morgan and Goldman Sachs, although Tenev has not discussed the size of Robinhood’s loans on CNBC.
Meanwhile, the anger has spread beyond the investment community, with rappers and American politicians on both sides of the aisle joining the resistance.
“This is unacceptable,” tweeted Representative Alexandria Ocasio-Cortez, a Democrat.
“We now need to know more about @ RobinhoodApp’s decision to prevent private investors from buying stock, while allowing hedge funds to freely trade the stock as they see fit.”
Her tweet was shared by Republican Senator Ted Cruz who said, “I totally agree.” Tesla founder Elon Musk, whose stock is also a retail favorite, also responded to Ocasio-Cortez’s tweet, saying, “Absolutely.”
Robinhood did not respond to requests from Reuters news agency for comment.
Celebrities also voted in. “Yo this is af ***** g CRIME what @RobinhoodApp is doing. DO NOT SELL !!!” tweeted rapper Ja Rule.
Founded in 2013 with a mission to “democratize finances for all” by offering commission-free commerce, Thursday’s move was considered hypocritical by many. Many users shared a tweet from 2016 in which the company said, “Let the people act.”
“This has always been a potential problem with Robinhood,” said Ian Kar, co-founder and CEO of research firm Fintech Today. “When are you responsible for helping your users make good financial decisions, instead of letting them act freely?”
Robinhood saw things boom during the coronavirus pandemic as more homebound consumers started buying and selling stocks online. The app now has more than 13 million users.
While the attractive service has made it attractive to millions of customers, it has also caught the attention of critics and regulators who are concerned that the company is encouraging risky behavior among private investors.