Robinhood raised $ 1 billion overnight from investors to sharpen its balance sheet, as the brokerage app was set up to make it easier to trade certain volatile stocks, according to CNBC’s Andrew Ross Sorkin.
The money raised was in addition to the $ 500 million the broker raised through credit lines to ensure he had the capital needed to continue to enable clients to trade stocks such as GameStop and AMC Entertainment. .
Robinhood CEO Vlad Tenev told CNBC that taking down the credit lines was a proactive measure and denied that it was due to a liquidity problem.
“By using our credit lines that we do throughout as part of normal day-to-day operations, we get more capital that we can deposit at the cleaning houses, which will enable us to make more investments with fewer restrictions,” Tenev said. Sorkin in a CNBC interview Thursday night.
Shares in the popular retail name rose in pre-trading on Friday in anticipation that Robinhood would ease some restrictions. Shares of GameStop rose 80% and shares of AMC Entertainment rose 60% on Friday.
Amid a frantic week of speculative retail trading, Robinhood earlier Thursday restricted trading in 13 stocks, including GameStop and AMC Entertainment. Robinhood only allowed clients to sell positions, not open new positions, in certain securities, increased margin requirements, and even said that it would automatically close some positions if the client ran the risk of not having the necessary collateral.
The company then said Thursday after the closing clock that it would allow limited purchases of limited bonds on Friday.
Robinhood experienced an unprecedented high in trading this week when retailers reading through Reddit attempted to take over certain strongly shortened stocks. Robinhood, which has to deposit money based on the amount of transactions at a clearing house, said it restricted trade because the business could not meet the deposit requirements it expects. The requirements rise when volatility increases as a large proportion of investors lose an option trade.
The $ 1 billion raised comes from previous venture capitalists in Robinhood, including Sequoia, and the credit limits are from banks, including JPMorgan and Goldman Sachs.
In short selling, investors borrow shares of a company in the expectation that the share price will fall and thus make a profit when the short seller has to cover the shares after expiration of the trade.
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