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Robinhood says it will not assure investors a meme mania won't hit it again

Robinhood says it will not assure investors a meme mania won't hit it again

July 3, 2021: -Robinhood said Thursday that the first time Robinhood restricted trading on its app during the GameStop event earlier this year might not be the last.

In January, when an epic short squeeze erupted in GameStop’s stock driven by retail traders partially, Robinhood shut down trading of certain meme shares because of increased capital requirements from its clearinghouses. Instead of raising north of $3.4 billion in some days to shore up its balance sheet, the limited brokerage trading of GameStop, AMC Entertainment, and other Reddit darlings.

“We cannot assure that similar events will not occur in the future,” Robinhood said in its S1 filing to the Securities and Exchange Commission.

As a brokerage, Robinhood has financial requirements for the clearinghouses that execute its clients’ trades, and some of these requirements fluctuate based on volatility in the markets. The volatility in January forced hikes in conditions and caused a flurry of outraged customers, many of who threatened to leave the app.

Robinhood said that “this resulted in negative media attention, customer dissatisfaction, litigation and U.S. Congressional inquiries and investigations, capital that raise by us to lift the trading restrictions while remaining in compliance with our net capital and deposit requirements and reputational harm.”

Robinhood CEO Vlad Tenev was blaming the two-day trade settlement, known as T+2, for a few of the clearinghouse deposit issues in the GameStop mania and called for real-time settlement.

“The existing two-day period to settle trades exposes investors and the industry to unnecessary risk and is ripe for change,” Tenev said in a testimony to the House Financial Services Committee after the GameStop drama.

“Last week, the clearinghouse deposit requirements are designed to mitigate risk, but wild market activity showed that these requirements, coupled with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks,” he said.

Last week, the trading mania revived as Reddit traders continued to pile into their favorite meme stocks, which include GameStop, AMC Entertainment, and others. AMC is up 2,400% this year.

Robinhood expects to go public on the Nasdaq under ticker “HOOD” this year. The free-trading pioneer experienced a growing record in the past year resulting in 18 million accounts and $80 billion in customer assets.

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