(Reuters) – Robinhood, the US online broker that has become a gateway for amateur traders challenging Wall Street’s hedge funds, has held talks with banks about raising $ 1 billion in debt so it can continue to fulfill orders for strong short-short stocks, according to people familiar with the matter.
The capital raised is said to be separate from the $ 3.4 billion in funding Robinhood announced Monday that it had secured from its investors since January 29. It reflects the financial pressure that last week’s Reddit madness placed on the company. , prompting him to limit some transactions.
Robinhood needs the money for backstop trades that its clients place as the clearinghouse has asked for more collateral due to the increased volatility. Robinhood CEO Vlad Tenev said on Sunday that the trading app decided to restrict some transactions because the clearinghouse had asked for $ 3 billion in collateral.
Robinhood began negotiations with banks about expanding its lines of credit or arranging a new one after emptying its revolving debt facility during last week’s hectic trading, one source said. It’s not clear how much debt Robinhood will be able to secure.
The sources asked for anonymity as the matter is confidential. Robinhood declined to comment.
Robinhood, which has become popular with young investors for its user-friendly interface, is at the heart of a mania that started last week after calls from Reddit thread WallStreetBets to trade certain stocks that were heavily shorted by hedge funds.
The online brokerage has been criticized by some of its users for putting restrictions on transactions. The woes have raised doubts as to whether plans to launch an IPO by April will remain on track.
The Menlo Park, California-based company was founded in 2013 by Baiju Bhatt and Tenev with the goal of democratizing finances. The platform allows users to make unlimited commission-free trades in stocks, exchange-traded funds, options and cryptocurrencies.
Robinhood said on Monday that the latest equity financing was led by Ribbit Capital, with participation from existing investors including ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures and NEA.
Reporting by Sumeet Chatterjee in Hong Kong, Anirban Sen in Bengaluru and David French in New York; Editing by Lisa Shumaker