The American online broker Robinhood was one of the most popular places in the madness for retail, but the sudden fight against the purchase of some hot shares caused anger among customers, celebrities and politicians who think that it is bigger investors unfairly favored.
The company also utilized a credit line so that it has funds to ensure the continuity of trading when it repeals the rules.
Robinhood CEO Vladimir Tenev said on Thursday that trading was limited to “about 13” viral shares, including GameStop, AMC Entertainment and American Airlines, to protect the company and its customers from volatility.
These shares slipped on Thursday, and the losses are only lower after Robinhood said he hoped to lift the curbs on Friday.
GameStop rose more than 40 percent on Thursday, briefly pushing the stock above $ 500 a share. It has advanced by more than 1,700 per cent this year, increasing an increase in retail across the board, leading some short sellers – who are betting that a share will fall – to throw in the towel.
[Bloomberg]
Tenev told the US financial news network CNBC that the brokerage tapped credit lines “so that within reason we could maximize the funds we have to deposit at the clearing houses” to facilitate more trading.
“We understand that our customers are upset. We are doing what we can to make the purchase possible again in these names,” he said. “We want to be clear in the communication, and I own that we should have been there a little earlier.”
While other companies like Interactive Brokers also restrict trading, Robinhood’s fee-free and easy-to-use app has made it popular with a new generation of retailers, and its restrictions have caused the heaviest setback.
“Keep Your Promise”
“Robin Hood? Nah y’all ROBBING the HOOD,” tweeted one user. “Crazy how you’d rather see your business burn to the ground than keep your promise to offer users free trade,” he said. another said.
Twitter users also complained that Robinhood apparently sold their shares without authorization. Robinhood did not immediately comment on whether it restricted sales, but Tenev said customers may sell but not buy.
Two customers sued Robinhood Financial for damages for trading in a series of shares.
The Bloomberg News agency reports that the broker has used at least a few hundred million dollars from his credit providers, including JP Morgan and Goldman Sachs, although Tenev did not discuss the size of the loans on CNBC’s Robinhood.
Meanwhile, anger has spread outside the investment community with rappers and American politicians on both sides of the aisle.
“This is unacceptable,” tweeted Representative Alexandria Ocasio-Cortez, a Democrat.
“We now need to know more about @ RobinhoodApp’s decision to ban retail investors from buying shares, while hedge funds are freely able to trade the shares as they see fit.”
Her tweet was shared by Republican Senator Ted Cruz, who commented: “Agree completely.” Tesla founder Elon Musk, whose shares were also a small favorite, also commented on Ocasio-Cortez’s tweet: “Absolutely”.
Robinhood did not respond to a request for comment from the Reuters news agency.
Celebrities also climbed in. “It’s an incredible crime that @RobinhoodApp does DO NOT SELL !!!”, rapper Ja Rule tweeted.
Founded in 2013 with the mission ‘democratizing finances for all’ by offering commission-free trade, Thursday’s move was seen by many as hypocritical. Many users shared a 2016 tweet in which the company says, “Let people trade.”
“It’s always been a potential problem with Robinhood,” said Ian Kar, co-founder and CEO of research provider Fintech Today. “When are you responsible for helping your users make good financial decisions, and not allowing them to trade freely?”
Robinhood has had a big boom in the coronavirus pandemic as more consumers buy and sell the shares online. The app now has over 13 million users.
While the engaging service has attracted millions of customers, it has also drawn the attention of critics and regulators who are concerned that the company may encourage risky behavior by retail investors.