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Robinhood website home screen
Photographer: Gabby Jones / Bloomberg
Photographer: Gabby Jones / Bloomberg
Robinhood Markets, the popular trading app for investors behind this month’s fiercest market swings, has cut some of its lines of credit with banks, according to people familiar with the matter.
The firm has raised at least several hundred million dollars, one of the people said. The company’s lenders include JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to data compiled by Bloomberg. Representatives for Robinhood and those banks declined to comment.
The rush behind the scenes to bolster Robinhood’s finances adds to signs that the recent market devastation is putting pressure on the company, which has recruited a host of retail investors for its app during the pandemic. The company is among the brokerage houses that have cracked down on trading GameStop Corp. and On Thursday, AMC Entertainment Holdings Inc. sparked outrage from customers. Robinhood has also told users that it may close some of their positions as it takes steps to reduce account risk.
“As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearing house deposits,” Robinhood said in a blog post Thursday. “Some of these requirements fluctuate with market volatility and can be significant in today’s environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the actions we have taken today. “
The extreme volatility “generated substantial risk” for brokerage firms, placing stricter requirements on those firms, according to Wall Street clearinghouse DTCC.
“When volatility increases, the portfolio’s margin requirements also increase,” said the Depositary Trust & Clearing Corp. in a press release sent by email.
Read more: Reddit Stock Mayhem ‘Generated Substantial Risk’ for Brokers
With its user-friendly app and commission-free transactions, Robinhood has grown rapidly in recent years, and then even more so during the pandemic, becoming the platform of choice for legions of people turning to the stock markets to earn money. money and spending time during lockouts. For months, the company is expected to hold an initial public offering this year.
But this month’s drama around a GameStop and AMC price spike, coordinated by investors on Reddit, has placed Robinhood at the center of the controversy. The company said after the close of US negotiations on Thursday that it would allow the resumption of “limited purchases” on certain affected securities.
Robinhood has relied on its credit from banks to weather the turbulence before. In March, the firm took an entire $ 200 million facility from a trio of lenders, people familiar with the matter said at the time, as the coronavirus pandemic triggered a flood of transactions and sharp market swings, in the during which Robinhood’s trading platform suffered repeated outages.
– With the help of Misyrlena Egkolfopoulou
(Updates with clearing-house mechanism comment starting at fifth paragraph.)
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