Robinhood says it cannot assure investors a meme mania won’t hit it again

Commercial information for GameStop is displayed on the Robinhood app while another screen displays the Robinhood logo in this photo image dated January 29, 2021.

Brendan McDermid | Reuters

The first time Robinhood restricted trading of its app during the GameStop event in January may not be the last, the company said on Thursday.

When an epic short squeeze erupted in GameStop stock in January, partly driven by retailers, Robinhood stopped trading certain Meme stocks due to increased capital requirements from its clearing houses. Though he raised more than $ 3.4 billion in just a few days to prop up his balance sheet, the brokerage restricted trading from GameStop, AMC Entertainment, and other Reddit darlings.

“We cannot guarantee that similar events will not occur in the future,” said Robinhood in its S1 filing with the Securities and Exchange Commission, published Thursday.

As a brokerage firm, Robinhood has financial requirements on the clearing houses that run its clients’ business, and some of those requirements fluctuate due to the volatility in the markets. The volatility in January forced higher requirements and caused an uproar from indignant customers, many of whom threatened to leave the app.

“This has resulted in negative media attention, customer dissatisfaction, litigation and government and US Congressional investigations and inquiries, us raising capital to lift trade restrictions while meeting our net capital and deposit requirements and causing reputational damage,” Robinhood said on the filing.

Robinhood CEO Vlad Tenev blamed the two-day trade settlement known as T + 2 for some of the clearinghouse deposit issues during the GameStop mania and requested real-time settlement.

“The existing two-day deadline for executing trades exposes investors and the industry to unnecessary risks and is ripe for change,” Tenev said in a statement before the House Financial Services Committee after the GameStop drama.

“The clearinghouse deposit requirements are designed to mitigate risk, but last week’s wild market activity has shown that these requirements, coupled with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks,” he said.

The trading mania was revived last month as Reddit traders continued to amass their favorite meme stocks like GameStop, AMC Entertainment, and others. AMC is up 2,400% this year

Robinhood is expected to go public on the Nasdaq under the ticker “HOOD” later this year. The free trade pioneer saw record growth last year with 18 million accounts and $ 80 billion in client assets.

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