Robinhood raised $ 1 billion from investors overnight to bolster its balance sheet as the brokerage application had to ease restrictions on trading certain volatile stocks, according to CNBC’s Andrew Ross Sorkin.
The money raised exceeded the $ 500 million the broker accessed through lines of credit to make sure it had the capital needed to continue allowing its customers to trade stocks like GameStop and AMC Entertainment.
Robinhood CEO Vlad Tenev told CNBC that taking advantage of lines of credit was a proactive measure and denied it was due to a liquidity problem.
“Through our lines of credit that we do all the time as part of normal day-to-day operations, we get more capital that we can deposit in clearing houses and this will allow us to invest ideally with fewer restrictions,” Tenev said. Sorkin in a CNBC interview Thursday evening.
Shares of popular retail names rose Friday in pre-trading negotiations with the forecast that Robinhood would ease some restrictions. Shares of GameStop rose 80% and those of AMC Entertainment appeared 50% in premarket trading.
Amid a wild week of speculative retail, Robinhood on Thursday previously limited trading to 13 equities, including GameStop and AMC Entertainment. Robinhood only allowed clients to sell positions, not open new ones, at certain values, increased margin requirements and even said it would close some positions automatically if the client runs the risk of not having the necessary guarantees.
The company said after the closing bell on Thursday that it would allow limited buying of restricted securities on Friday.
Robinhood has experienced an unprecedented high volume of transactions this week as Reddit reading retailers try to acquire certain very short stocks. Robinhood, which has to deposit money into a clearing house based on the volume of transactions, said it restricted trading because the firm could not meet the deposit requirements it envisioned. Requirements increase when volatility increases in the event that a large number of investors lose in an options trade.
The $ 1 billion raised came from previous venture capitalists in Robinhood and the lines of credit came from banks like JPMorgan and Goldman Sachs.
In the short sale, investors borrow shares of a company with the expectation that the share price will go down, which leads to a profit when the short seller has to cover the shares at the maturity of the trade.
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