Robinhood, the online brokerage that is at the center of wild stock trading this week, has raised more than $ 1 billion from its existing investors and used credit lines from banks to strengthen its financial position after a turbulent four days.
According to people familiar with the company, the company has withdrawn at least hundreds of millions of dollars via a credit facility at banks led by JPMorgan, including Goldman Sachs, Morgan Stanley, Barclays and Wells Fargo.
A Robinhood spokesman early on Friday described the $ 1 billion infusion of its investors as a ‘strong sign of confidence’ that will help ‘further serve our customers’.
The development came after Robinhood and other retail brokers on Thursday restricted trading in a number of companies whose share prices rose sharply over the past week, upsetting the users and questions of US politicians.
“We have taken a difficult decision today to temporarily restrict the purchase for certain securities,” Robinhood said in a statement late Thursday. As a brokerage firm, we have many financial requirements, including SEC net capital liabilities and deposits. Some of these requirements vary according to the volatility in the markets and can be significant in the current environment. ”
Robinhood’s bankers declined to comment.
Robin Tenev, co-founder of Robinhood, added in a CNBC interview that it would maximize the pulling of bank credit limits. . . the funds we have to deposit at the greenhouses ”that help manage US markets.
The company said it would “trade responsibly for some of these securities” – an announcement immediately kicked by markets. GameStop shares jumped more than 60 percent overnight, reversing a 44 percent drop Thursday. Shares in AMC and BlackBerry also reversed many of their losses.
“We will continue to monitor the situation and make adjustments if necessary,” Robinhood said.
In common with competitors such as Schwab and ETrade, which also restricted some trading on Thursday, Robinhood trades transactions at the major U.S. clearing houses, managed by the Depository Trust & Clearing Corporation for equities and the Options Clearing Corporation for options. Between two sides of a transaction stands a clearing house and manages the risk for the market if one side defaults.
Since it takes the risk that a executed trade will not settle its own book, Robinhood must have capital at hand. It also raised higher costs than the clearing house margin requirements to protect its members from high market volatility.
“Robinhood is in a difficult place and it’s a very visible moment,” said Paul Deer, director of Advisory Service at Personal Capital, a digital wealth manager. “They have investors trading on margin, and it’s a risk for them and the broker if we see prices reversed.”
The trading platform is a popular place for day traders who have arranged on Reddit message boards to buy specific stocks, hoping to apply hedge funds that have placed big bets on the same stocks.
The decision to restrict trade led to a sharp backlash from users, a lawsuit accusing Robinhood of market manipulation and calls from politicians to investigate the company. The Senate Banking Committee said it would hold a hearing on the volatility.
A number of online conspiracy theories are also spreading online.
There were also after-hours statements Thursday from marketing groups that trade and are criticized on social media, including from Citadel Securities, the trading company owned by Ken Griffin, which pays Robinhood for orders.
Citadel Securities said it had not instructed or otherwise stopped a brokerage firm, suspended or restricted trading or otherwise refused to do business.
Citadel, a hedge fund also funded by Mr. Griffin owned, said he “is not involved in, or responsible for, any retail brokers’ decision to stop in any way”. Earlier this week, Citadel provided rescue financing to Melvin Capital, a hedge fund run by retailers on Reddit.
Mr Tenev said on Twitter that Robinhood’s’ mission to increase access to investment remains a priority.
“However, we can not control the lightning-fast spread of information and misinformation that takes place on social media, and for that I regret our customers and staff incredibly much for this.”