The self-proclaimed The democratic financial app Robinhood was attacked on Thursday by stop trading in GameStop shares and other shares favored by the Reddit WallStreetBets community. But while critics accuse the stockbroker of frustrating amateur investors to protect large Wall Street companies from increasing losses, Robinhood says the real explanation is much more boring: he simply couldn’t afford to follow the flood of trading deals. memes actions.
See, when buying or selling shares, the exchange goes through an intermediary clearinghouse that ensures that everything is in order to mutualize the risk. Clearing houses, which are registered and approved by the Securities and Exchange Commission, register the trade, as well as collect and negotiate payments, once the buyer and seller agree on the price. They also impose deposit requirements, a form of risk management to protect themselves in the process, which means that brokers must deposit a certain amount of guarantee to ensure that their trades are carried out. Apparently, Robinhood’s clearinghouse increased these deposit requirements this week, probably because it was frightened by the skyrocketing stock price volatility for GameStop, AMC, BlackBerry and other battered companies that Reddit users seek in an effort to err the hedge funds that bet heavily against them.
“To put into perspective, just this week, our deposit requirements mandated by the stock clearinghouse have increased tenfold,” said Robinhood in a blog post published on Friday. “And that is what led us to place temporary purchase restrictions on a small number of securities for which the clearing houses have increased their deposit requirements.”
The brokerage also emphasized that it did not interrupt negotiations to hurt retail investors. Speculation that Robinhood diverted trading of certain stocks on behalf of hedge fund managers, the U.S. government or other fat cats to preserve its financial interests has run rampant online since the company’s decision.
“It wasn’t because we wanted to stop people from buying these shares,” continued Robinhood. “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 requirements. ”
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If true, it is unclear why Robinhood did not come up with that explanation right away, instead giving the conspiracy theories online to rot about corruption and nefarious plots to crack down on amateur investors who bet on all of this. Granted, speculation would probably still have surfaced, no matter what – after all, we’re talking about the internet – but, to leave that information out and just claim that the decision was made “protect investors, ”As Robinhood did on Thursday, is stopped suspect as hell.
Namely, Google removed at least 100,000 negative comments Google Play Store’s Robinhood after angry users sent tons of critical reviews and lowered the app’s rating. Robinhood’s restrictions also generated two class actions, one per alleged violations of your customer agreement and another for alleged antitrust violations, brought by the same lawyer who is currently managing Alex Jones your ass in court. Congress it was even pulled in the GameStonks drama and is planning an investigation. The Securities and Exchange Commission is monitoring the situation also.
This bizarre saga seems far from over, so arrest people. And invest wisely.