Robinhood raised more than $ 1 billion overnight from investors to bolster its balance sheet as the brokerage application was established to ease restrictions on trading certain volatile stocks, according to CNBC’s Andrew Ross Sorkin.
The money raised was over $ 500 million that brokers accessed through lines of credit to ensure they had the capital to allow its clients to trade stocks such as GameStop and AMC Entertainment.
Robinhood chief executive Vlad Tenev told CNBC that reaching the credit lines was a proactive measure and denied it was due to a liquidity problem.
“By using our lines of credit that we do all the time as part of normal day-to-day operations, we get more capital that we can deposit in clearing houses and that will allow us to ideally invest more, with more few restrictions, “Tenev Sorkin said in a CNBC interview Thursday night.
Shares of popular retail names rose in premarket trading on Friday, pending a reduction by Robinhood. GameStop shares rose 80% and AMC Entertainment shares rose 50% in premarket trading.
In a wild week of speculative retail trading, Robinhood earlier Thursday traded in 13 shares, including GameStop and AMC Entertainment. Robinhood allowed clients to sell positions, not open new ones, in certain securities, increased margin requirements and even said it would close some positions automatically if the client risks not having the necessary guarantees.
The company then said after the closing bell on Thursday that it would allow the limited purchase of restricted securities on Friday.
Robinhood recorded an unprecedented high trading volume this week as retailers reading Reddit try to take over some very short-circuited shares. Robinhood, which has to deposit money at a clearing house based on the volume of transactions, said the restriction on transactions was due to the fact that the company could not meet the deposit requirements it anticipated. Requirements increase when volatility increases if a large portion of investors lose out on the options transaction.
The $ 1 billion raised came from previous venture capitalists in Robinhood, and the lines of credit come from banks, including JPMorgan and Goldman Sachs.
In the case of a short sale, investors borrow shares of a company in anticipation that the share price will fall, making a profit when the short seller has to cover the shares at the end of the transaction.
Subscribe to CNBC PRO for exclusive statistics and analysis and live business scheduling around the world.