U.S.-based online broker Robinhood has been one of the hottest places in the retail frenzy this week, but its sudden restrictions on buying hot shares have angered customers, celebrities and politicians who claim the benefits are unfair to larger investors.
The company has also operated a line of credit so that it has the funds to ensure continuity of trading when raising the rules.
Robinhood CEO Vladimir Tenev said Thursday that trade is restricted to “about 13” viral stocks, which include GameStop, AMC Entertainment and American Airlines, to protect the company and its customers from volatility.
These shares slipped on Thursday, reducing losses only after Robinhood said it hoped to lift the curbs on Friday.
GameStop rose more than 40% on Thursday, currently pushing the stock to over $ 500 a share. It has advanced by more than 1,700 percent this year, raising a general retail rally and leading a few failed sellers – traders who bet a stock will fall – to throw in the towel.
[Bloomberg]
Tenev told the US financial news network CNBC that the brokerage has reached the credit lines “so that we can reasonably maximize the funds we have to deposit at the clearing houses” to facilitate more transactions.
“We understand that our customers are upset, we are doing everything we can to reactivate the purchase in these names,” he said. “We want to be clear in our communications, and I know we should have been there a little earlier.”
While other companies, such as Interactive Brokers, have also restricted trading, the free and easy-to-use Robinhood app has made it popular with a new generation of small traders, and its restrictions have attracted the most reaction.
“Keep your promise”
“Robinhood? You’re not ROBBING the HOOD, “one user wrote on Twitter.” Crazy how would you rather watch your company burn to the ground than keep your promise to give users free trade, “said another.
Twitter users have also complained that Robinhood appears to be selling its shares without authorization. Robinhood did not immediately comment on whether it restricted sales, however Tenev said customers are allowed to sell but not buy.
Two clients sued Robinhood Financial, demanding compensation for stopping trading in a series of actions.
The Bloomberg news agency reported that the broker obtained at least several hundred million dollars from its creditors, including JP Morgan and Goldman Sachs, although Tenev did not discuss Robinhood’s loans on CNBC.
Meanwhile, anger has spread beyond the investment community, with American rappers and politicians on both sides of the aisle joining the backlash.
“This is unacceptable,” Alexandria Ocasio-Cortez, a Democrat, posted on Twitter.
“Now we need to find out more about @ RobinhoodApp’s decision to block retail investors from buying shares, while hedge funds are free to trade the shares as they see fit.”
Her tweet was shared by Republican Sen. Ted Cruz, who commented, “I totally agree.” Tesla founder Elon Musk, whose shares were also a retail favorite, also commented on Ocasio-Cortez’s tweet, saying, “Absolutely.”
Robinhood did not respond to Reuters requests for comment.
The stars also intervened. “Yo this is af ***** g CRIME what @RobinhoodApp does NOT SELL !!!”, wrote on Twitter the rapper Ja Rule.
Founded in 2013 with the mission of “democratizing finance for all”, offering commission-free transactions, Thursday’s move was seen by many as hypocritical. Many users shared a tweet in 2016 in which the company said, “Let people trade.”
“This has always been a potential issue with Robinhood,” said Ian Kar, co-founder and CEO of research provider Fintech Today. “When are you responsible for helping your users make good financial decisions, rather than allowing them to trade freely?”
Robinhood saw economic growth during the coronavirus pandemic as more home consumers bought and sold shares online. The application now has over 13 million users.
While its attractive service has made it attractive to millions of customers, it has also drawn attention to critics and regulators who are concerned, the company could encourage risky behavior in retail investors.