Kristina Partsinevelos, of FOX Business, analyzes what is happening with the brokerage app Robinhood and how users reacted to the company that limited trading this week.
Robinhood CEO Vlad Tenev on Friday denied that pressure from Wall Street hedge funds prompted the mobile brokerage to decide to restrict trading involving GameStop shares as prices soared this week.
Robinhood has faced unprecedented scrutiny in the past few days from critics, including Congressional lawmakers and Barstool Sports founder Dave Portnoy, who claimed that the platform has suspended stock trading favored by retail investors to protect hedge fund allies. In an interview with Yahoo Finance, Tenez referred to the allegations as a “conspiracy theory”.
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“I think I said it several times that it wasn’t true,” said Tenev. “Our decision to temporarily restrict customers from buying certain securities had nothing to do with a market maker or a market participant or anyone like that pressuring us or asking us to do so. It was entirely about market dynamics and the clearinghouse’s deposit requirements, as per the regulation. “
Robinhood drew widespread criticism this week after temporarily applying buying limits to several shares touted on Reddit’s “WallStreetBets” forum, including GameStop, AMC Entertainment and Nokia. The day trading app started accepting purchases again on Friday, but set a limit of just one share per user at the close of the trade.
GameStop was one of the best-selling stocks on Wall Street before the sudden interest in the stock rose. The commercial frenzy sparked “little pressure”, costing hedge funds that bet against billion-dollar stocks.
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Lawmakers on both sides of the political corridor, including Congressman Alexandria Ocasio-Cortez, D-NY, and Senator Ted Cruz, R-Tx., Called for an investigation into Robinhood’s decision. In a blog post, the platform said the restrictions were aimed at reducing the risk.
“I think if you look at this whole situation, it is a new situation,” added Tenev in the interview. “A relatively small number of actions have gone viral on the Internet. And as things go viral on social media and the Internet, there is an exponential growth in interest. And so we have to be cautious. And we must have prudent risk management. And that is what the company did. “