After putting up with a whole day taking a beating on the social networks, government, and the multiple app stores the mobile world, Robinhood created his own blog and CEO Twitter account to explain why he stopped trading some stocks earlier today.
The fact that Robinhood restricted trading on a range of securities was bombastic news after the consumer trading platform became synonymous not only with an increase in retail investment, but also with a risky bet by some individual investors to push shares of companies with short positions, including GameStop, AMC and other superiors. Speculation that Robinhood was limiting these users’ bargaining power at the behest of, choose their poison, Citadel, the US government, hedge funds, Janet Yellen, or others, has run wild.
But none of this was true – at least according to what Robinhood said. In his post, Robinhood wrote that (emphasis on TechCrunch):
[a]In the midst of this week’s extraordinary market circumstances, we made a difficult decision today to temporarily limit the purchase of certain securities. 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. These requirements are in place to protect investors and the markets, and we take the responsibility to take them seriously, including through the measures we take today.
It seems that Robinhood ran out of capital and had to make some difficult decisions quickly. The bonds that its users wanted to trade were likely to generate the highest capital obligations, given their volatility and the time it takes for trades to be settled, so Robinhood had to close some trades to stay on the right side of his capital needs. (Isn’t it great, isn’t it terrible?)
Bloomberg reports indicate that Robinhood “took advantage of at least several hundred million dollars” of credit lines today makes sense in this context. As well as the unicorn’s decision to allow some trading of previously limited bonds in the near future (“starting tomorrow, we plan to allow limited purchases of those bonds,” wrote the company); now reloaded with more capital, Robinhood can allow its users to return, in a certain way, to business.
Of course, Robinhood could have been clearer about all of that earlier in the day. Instead, unjustly or not, it has become the face of theoretical corruption and other nefarious forces. (Here’s a tip, if your theory looks like it could fit inside the Qanon orbit, try again?)
Nothing is resolved. Congress is angry. Other trading platforms had to suspend trading of GameStop and other stocks for a period as well. Social media is upset. Some Robinhood users were forced to liquidate positions. And somehow GameStop ended the day at more than $ 196 per share. And after hours, it’s $ 72.40, or 37.40%, to $ 266 per share.
Who knows what comes next. But grains of salt, please, as we continue this bizarre adventure.
Originally published