Robinhood raised $ 1 billion from investors overnight to bolster its balance sheet as the brokerage app would ease restrictions on trading certain volatile stocks, said CNBC’s Andrew Ross Sorkin.
The money raised was in addition to $ 500 million that the broker had access through lines of credit to ensure he had the necessary capital to enable his clients to trade stocks such as GameStop and AMC Entertainment.
Robinhood CEO Vlad Tenev told CNBC that tapping credit lines was a proactive measure and denied that it was due to a liquidity problem.
“By using our lines of credit, which we do all the time as part of normal day-to-day operations, we will get more capital that we can deposit with clearing houses and that will allow us to ideally invest more with fewer restrictions” , said Tenev. Sorkin in a Thursday night CNBC interview.
Shares of the popular retail trade names all surged in premarket trading Friday, ahead of Robinhood relaxing some of the restrictions. GameStop’s stock was up 80% and AMC Entertainment’s stock was up 50% in premarket trading.
Amid a wild week of speculative retail trading, Robinhood restricted trading of 13 stocks earlier Thursday, including GameStop and AMC Entertainment. Robinhood only allowed clients to sell positions in certain securities, not open new ones, increased margin requirements and even said it would automatically close some positions if the client was at risk of not having the required collateral.
The company then said after Thursday’s closing bell that it would allow limited purchases of restricted securities on Friday.
Robinhood experienced unprecedented trading volume this week as Reddit-reading retailers attempted to acquire certain heavily shorted stocks. Robinhood, which has to deposit money at a clearing house based on the volume of the transactions, said it was limiting trade because the company was unable to meet the deposit requirements it expected. The requirements go up when volatility increases in the event that a large portion of investors miss out on an options trade.
The $ 1 billion raised came from previous venture capital investors in Robinhood and the lines of credit are from banks including JPMorgan and Goldman Sachs.
In short selling, investors borrow shares of a company with the expectation that the stock price will fall, which produces a profit when the short seller has to cover the shares at the maturity of the trade.
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