The Robinhood app on a smartphone.
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Online broker Robinhood said it has imposed temporary purchase restrictions on a small number of securities because the deposit requirements for shares in the central clearinghouse on Wall Street have increased tenfold.
Robinhood’s decision, a pioneer free trade application popular with retail investors, attracted scrutiny from his customers last week.
“It wasn’t because we wanted to stop people from buying these shares,” said Robinhood in a blog published on Friday.
“We did this because the necessary amount that we had to deposit in the clearinghouse was so large – with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements – that we had to take steps to limit the purchase of these volatile securities to ensure that could comfortably meet our needs “, he continued.
Amateur investors using Robinhood and other apps made offers on heavily sold shares and caused GameStop’s shares to skyrocket 400% last week, resulting in huge losses for hedge funds that sold short shares.
Robinhood initially told investors that they could only sell, not buy new shares from certain companies that were attracting the attention of retail traders on Reddit. The online broker now allows customers to purchase only a single GameStop share. A total of 50 securities are now restricted to the stock trading application.