The self-declared The democratic financial app Robinhood was temporarily under fire on Thursday stop trading on GameStop stock and other stocks favored by Reddit’s WallStreetBets community. But while critics accused the stockbroker of foiling amateur investors to protect large Wall Street companies from escalating losses, Robinhood argues that the real explanation is much more boring: It just couldn’t afford to take the meme stock trading flurry at hold.
You can see that when buying or selling shares, the stock exchange is done through an intermediary clearinghouse that ensures that everything is in order to spread risks. Clearinghouses, which are registered and approved by the Securities and Exchange Commission, record the transaction and collect and dispense payments once the buyer and seller agree on a price. They also enforce deposit requirements, a form of risk management to protect themselves in the process, which means that brokers have to deposit a certain amount of collateral to ensure their trades go ahead. Apparently, Robinhood clearing house has jacked up these deposit requirements this week, probably because it was rocked by the volatility of skyrocketing stock prices for GameStop, AMC, BlackBerry and other battered companies that Reddit users had set their sights on in an attempt to close the hedge funds that bet heavily against them.
“To put it in perspective, this week alone, our clearinghouse-mandated deposit liabilities related to equities have increased tenfold,” Robinhood said. a blog post Published late Friday. “And that’s what prompted us to introduce temporary purchase restrictions on a small number of securities for which clearing houses had increased their deposit requirements.”
The broker also stressed that he was not stopping trading to hurt private investors. Speculation that Robinhood took down trading in certain stocks on behalf of hedge fund managers, the US government, or other fat cats to protect their financial interests has been rampant on the Internet since the company’s decision.
“It wasn’t because we wanted to prevent people from buying these stocks,” Robinhood continued. “We did this because the amount required to be deposited at the clearing house was so great – with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements – that we had to take steps to limit buying those volatile securities in order to avoid ensure that we could comfortably meet our requirements. ”
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If true, it’s unclear why Robinhood didn’t come up with this explanation right away, but instead make time for conspiracy theories to harass online over corruption and nefarious plots to crack down on the amateur investors who bank in all of this. Granted, speculation would probably still crop up no matter what – this is the internet we’re talking about, after all – but to omit that information and alone claim that the decision has been made “to protect investors, “As Robinhood did Thursday, is still suspicious as hell.
Google has namely removed at least 100,000 negative reviews from Robinhood from the Google Play Store after pissed off users sent tons of critical reviews and lowered the app’s rating. Robinhood’s limitations also led to two class-action lawsuits, one for alleged violations of its customer agreement and another for alleged violations of antitrust law, brought by the same attorney who is currently handing over Alex Jones his ass in court. Congress has even been drawn in the GameStonks drama and reportedly planning an investigation. The Securities and Exchange Commission is monitor the situation also.
This bizarre saga is far from over, so strap on people. And invest wisely.