The main screen of the Robinhood site
Photographer: Gabby Jones / Bloomberg
Photographer: Gabby Jones / Bloomberg
Robinhood Markets, the trading app that is popular with investors behind this month’s wildest stock exchanges, has drawn several lines of credit with banks, according to people familiar with the matter.
One person said the company had made at least a few hundred million dollars. Company creditors include JPMorgan Chase & Co. and Goldman Sachs Group Inc., accordingly data compiled by Bloomberg. Representatives for Robinhood and those banks declined to comment.
The rush behind the scenes to strengthen Robinhood’s finances adds to the signs that recent disasters in the market are putting pressure on the company, which has hired a lot of retail investors for its application during the pandemic. The firm is among the brokerages that have restricted the trading in shares of GameStop Corp. and AMC Entertainment Holdings Inc. on Thursday sparked outrage among customers. Robinhood also told users that it can close some of their positions because it is taking steps to reduce account risks.
“As a brokerage firm, we have many financial requirements, including net SEC capital bonds and clearing house deposits,” Robinhood said in a statement. blog post on Thursday. “Some of these requirements fluctuate based on market volatility and can be substantial in today’s environment. These requirements exist to protect investors and markets and we take our responsibilities to take them seriously, including through the measures we have taken today. ”
Extreme volatility “created a substantial risk” for brokerages, imposing stricter requirements on those firms, according to the DTCC of the Wall Street clearinghouse.
“As volatility increases, portfolio margin requirements also increase,” said Depositary Trust & Clearing Corp. in an e-mail statement.
Read more: Reddit Stock Mayhem “generated a substantial risk” for brokers
With the easy-to-use app and no-commission transactions, Robinhood has grown rapidly in recent years and even more so during the pandemic, becoming the platform of choice for legions of people who turn to the stock markets to make money and pass the time. blockages. For months, the company has been waiting for an initial public offering this year.
But this month’s drama over rising prices for GameStop and AMC, coordinated by Reddit investors, has put Robinhood at the center of controversy. The company said after closing US transactions on Thursday that it would allow the resumption of “limited purchases” in certain affected securities.
Robinhood relied on its credit with the banks to deal with the unrest ahead. In March, the company extracted an entire $ 200 million facility from a trio of creditors, people familiar with the problem said at the time, while the coronavirus pandemic triggered a flow of transactions and abrupt market fluctuations, during which the trading platform Robinhood has suffered repeated outages.
– With the assistance of Misyrlena Egkolfopoulou
(Updates with comments from the clearing house starting with the fifth paragraph.)