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Robinhood raised $ 1 billion overnight from investors to strengthen its balance sheet as the brokerage app was to ease restrictions on trading certain volatile stocks, according to CNBC’s Andrew Ross Sorkin.
The money raised was in addition to the $ 500 million the broker accessed via lines of credit to ensure it had the capital to continue allowing its clients to trade stocks like GameStop and AMC Entertainment. .
Robinhood CEO Vlad Tenev told CNBC that the exploitation of lines of credit was a proactive measure and denied that it was due to a liquidity problem.
“By leveraging our lines of credit, which we do all the time as part of normal day-to-day operations, we get more capital than we can deposit with clearing houses and that will allow us to ideally allow more investment. with fewer restrictions, ”Tenev said. Sorkin in an interview with CNBC Thursday night.
Shares of popular retail names all rose in pre-market trading on Friday in anticipation of some restrictions being eased by Robinhood. GameStop shares grew 80% and AMC Entertainment shares grew 50% in pre-market trading.
In the midst of a mad week of speculative retailing, Robinhood on Thursday capped at 13 stocks, including GameStop and AMC Entertainment. Robinhood only allowed clients to sell positions, not open new ones, in some stocks increased the margin requirements and even said it would automatically close some positions if the client risked not having the collateral required.
The company then said after the closing bell on Thursday that it would allow the limited purchase of restricted securities on Friday.
Robinhood has seen unprecedented trading volume this week as retail traders reading Reddit try to take control of some very short stocks. Robinhood, who must deposit money into a clearinghouse based on trading volume, said the restricted trading was due to the company being unable to meet the deposit requirements it anticipated. The demands increase as volatility increases in case a large portion of investors lose on an options trade.
The $ 1 billion raised comes from former Robinhood venture capitalists and the lines of credit come from banks such as JPMorgan and Goldman Sachs.
In short selling, investors borrow shares of a company with the expectation that the stock price will fall, making a profit when the short seller has to hedge the shares when the trade expires.
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