Robinhood, the online brokerage at the center of wild stock trading this week, raised more than $ 1 billion from his existing investors and used bank credit lines to bolster his financial position after four turbulent days.
The company withdrew at least several hundred million dollars through a credit line with banks led by JPMorgan and including Goldman Sachs, Morgan Stanley, Barclays and Wells Fargo, according to people familiar with the move.
A Robinhood spokesman on Friday described the infusion of $ 1 billion from its investors as a “strong sign of confidence” that will help it “serve our customers even more.”
The events came after Robinhood and other retail brokers restricted trading on Thursday at a series of companies whose stock prices had risen sharply last week, sparking outrage among users and questions from American politicians.
“We made a difficult decision today to temporarily limit the purchase of certain bonds,” said Robinhood in a statement late on Thursday. “As a broker, we have many financial requirements, including SEC net equity obligations and clearinghouse deposits. Some of these requirements vary based on market volatility and can be substantial in the current environment. “
Robinhood’s bankers declined to comment.
Vlad Tenev, co-founder of Robinhood, added in an interview to CNBC that designing the bank’s credit lines would “maximize. . . the funds that we have to deposit in clearing houses ”that help to manage US markets.
The company said it would “open the trading of some of these bonds responsibly” – an announcement that caused an immediate shock to the markets. GameStop’s shares jumped more than 60 percent in overnight trading, reversing a 44 percent drop on Thursday. AMC and BlackBerry shares also reversed much of their losses.
“We will continue to monitor the situation and we can make adjustments as needed,” said Robinhood.
In common with rivals such as Schwab and ETrade, which also restricted some trades on Thursday, Robinhood settles trades at major US clearinghouses, managed by Depository Trust & Clearing Corporation for shares and Options Clearing Corporation for options. A clearing house sits between the two sides of a business, managing the risk to the market if one side goes into default.
As there is a risk that an executed transaction will not be settled in its own book, Robinhood needs to have available capital. It also faces higher costs if the clearinghouse increases margin requirements to protect its members from high market volatility.
“Robinhood is in a difficult situation and is a highly visible moment,” said Paul Deer, director of Consulting Services at Personal Capital, a digital wealth manager. “They have investors trading with margin and that poses a risk to them and the broker if we see prices reverse.”
The trading platform has proven to be a popular place for day traders who organize themselves on Reddit message boards to buy specific stocks, hoping to inflict losses on hedge funds that place big bets on the same stocks.
The decision to contain the trade resulted in a violent reaction from users, a class action lawsuit accusing Robinhood of market manipulation and calls from politicians to investigate the company. The Senate banking committee said it would hold a hearing on volatility.
A number of online conspiracy theories have also spread online.
There were also after-hours statements on Thursday from market-making groups that process trades and were criticized on social media, including Citadel Securities, the Ken Griffin-owned trading company, which pays Robinhood for orders.
Citadel Securities said it “did not instruct or cause any broker to stop, suspend or limit trading or refuse to do business”.
Citadel, a hedge fund also owned by Griffin, said “it is not involved in or responsible for any retail broker’s decision to stop trading in any way”. Earlier this week, Citadel provided bailout financing for Melvin Capital, a hedge fund targeted by retail traders on Reddit.
Tenev said on Twitter that Robinhood’s “mission to increase access to investment” remains a priority.
“We cannot control, however, the rapid diffusion of information and misinformation that occurs on social networks, and that is why I am very sorry to our customers and employees for this.”