U.S.-based online broker Robinhood has been one of the most popular retail frenzy sites this week, but its sudden limits on buying some hot stocks have increased customer anger, celebrities and politicians who argue that it unfairly benefits larger investors.
The company has also taken advantage of a line of credit so that it has funds to ensure the continuity of the negotiation when it lifts the rules.
Robinhood CEO Vladimir Tenev said trading on Thursday was restricted to “about 13” viral actions, including GameStop, AMC Entertainment and American Airlines, to protect the company and its customers from volatility.
These shares fell on Thursday, and recorded losses only after Robinhood said it expected to lift the sidewalk on Friday.
GameStop had risen more than 40% on Thursday, momentarily boosting stocks above $ 500 per share. It has advanced more than 1,700 percent this year, increasing the concentration of retail and leading some short sellers (traders who bet a stock will fall) to throw in the towel.
[Bloomberg]
Tenev told US financial news channel CNBC that the brokerage had taken advantage of the lines of credit “in order to be able to maximize, within reason, the funds we need to deposit in clearing houses,” to facilitate more trade.
“We understand that our customers are upset, we are doing what we can to reactivate the purchase with these names,” he said. “We want to be clear on communications, and I own that we should have been here a little earlier.”
While other companies like Interactive Brokers also restricted trading, Robinhood’s simple, easy-to-use app has made it popular among a new generation of small business traders and its restrictions provoked the heaviest reaction.
“Keep your promise”
“Robin Hood? You’re not doing everything,” one user tweeted.
Twitter users also complained that Robinhood appeared to be selling its shares without authorization. Robinhood did not immediately comment on whether it had restricted sales, but Tenev said customers were allowed to sell but not buy.
Two clients sued Robinhood Financial and claimed damages for business interruptions in a series of actions.
Bloomberg news agency reported that the broker has obtained at least several hundred million dollars from its lenders, including JP Morgan and Goldman Sachs, although Tenev did not discuss the size of Robinhood’s loans to CNBC.
Meanwhile, anger has spread beyond the investment community, with American rappers and politicians on both sides of the aisle joining the backlash.
“This is unacceptable,” tweeted Rep. Alexandria Ocasio-Cortez, a Democrat.
“We now need to know more about @ RobinhoodApp’s decision to block retail investors from buying shares so that hedge funds can freely trade the shares they deem appropriate.”
Republican Sen. Ted Cruz shared his tweet commenting, “I totally agree.” Tesla founder Elon Musk, whose shares have also been a favorite of the retail trade, also commented on Ocasio-Cortez’s tweet saying, “Absolutely.”
Robinhood did not respond to requests from Reuters news agency.
Celebrities also intervened. “Yo this is af ***** g CRIME what @RobinhoodApp is doing YOU WILL NOT SELL !!!”, tweeted rapper Ja Rule.
Founded in 2013 with the mission of “democratizing finance for all” by offering trade without commissions, many viewed Thursday’s measure as hypocritical. Many users shared a 2016 tweet in which the company said, “Let people trade.”
“This has always been a potential problem with Robinhood,” said Ian Kar, co-founder and CEO of research provider Fintech Today. “When is it responsible for helping its users make good financial decisions, rather than allowing them to trade freely?”
Robinhood has experienced a business boom during the coronavirus pandemic as more consumers at home were engaged in buying and selling stocks online. The application already has more than 13 million users.
While its attractive service has made it attractive to millions of customers, it has also analyzed critics and regulators who are concerned that the company may encourage risky behavior in retail investors.