The Robinhood application on a smartphone.
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Online broker Robinhood said it imposed temporary purchase restrictions on a small number of securities as the Wall Street exchange’s stock deposit obligations increased tenfold.
A free trade pioneer and app popular with retail investors, Robinhood’s decision received attention from its customers over the past week.
“It wasn’t because we wanted to prevent people from buying these shares,” Robinhood said in a blog post published late Friday.
“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 we could comfortably meet our requirements, ”it continued.
Amateur investors using Robinhood and other apps are bidding on strong short-short stocks, causing GameStop stocks to skyrocket 400% over the past week, resulting in big losses for hedge funds shorting stocks.
Robinhood initially told investors they could only sell and not buy new stock in certain companies that caught the eye of retailers on Reddit. The online brokerage now allows clients to buy just a single share of GameStop. A total of 50 securities are now limited on the stock trading app.