Robinhood says it can not guarantee traders a meme mania will not hit it once more

Buying and selling data for GameStop is displayed on the Robinhood App as one other display screen shows the Robinhood emblem on this picture illustration January 29, 2021.

Brendan McDermid | Reuters

Robinhood mentioned Thursday that the primary time Robinhood restricted buying and selling on its app — in the course of the GameStop occasion earlier this yr — might to not be the final.

In January, when an epic brief squeeze erupted in GameStop’s inventory partially pushed by retail merchants, Robinhood shut down buying and selling of sure meme shares as a result of elevated capital necessities from its clearinghouses. Regardless of elevating north of $3.4 billion in just a few days to shore up its steadiness sheet, the brokerage restricted buying and selling of GameStop, AMC Leisure and different Reddit darlings.

“We can not guarantee that related occasions is not going to happen sooner or later,” Robinhood mentioned in its S1 submitting to the Securities and Change Fee.

As a brokerage, Robinhood has monetary necessities to the clearinghouses that execute its shoppers trades, and a few of these necessities fluctuate based mostly on volatility within the markets. The volatility in January compelled hikes in necessities and prompted a flurry of outraged clients, many who threatened to depart the app.

“This resulted in unfavorable media consideration, buyer dissatisfaction, litigation and regulatory and U.S. Congressional inquiries and investigations, capital elevating by us with a view to raise the buying and selling restrictions whereas remaining in compliance with our internet capital and deposit necessities and reputational hurt,” Robinhood mentioned within the submitting.

Robinhood CEO Vlad Tenev blamed the two-day commerce settlement, often known as T+2, for a number of the clearinghouse deposit points in the course of the GameStop mania and known as for real-time settlement.

“The present two-day interval to settle trades exposes traders and the trade to pointless danger and is ripe for change,” Tenev mentioned in a sworn statement to the Home Monetary Providers Committee following the GameStop drama.

“The clearinghouse deposit necessities are designed to mitigate danger, however final week’s wild market exercise confirmed that these necessities, coupled with an unnecessarily lengthy settlement cycle, can have unintended penalties that introduce new dangers,” he mentioned.

The buying and selling mania revived final month as Reddit merchants continued to pile into their favourite meme shares together with GameStop, AMC Leisure and others. AMC is up 2,400% this yr.

Robinhood is predicted to go public on the Nasdaq underneath ticker “HOOD” this yr. The free-trading pioneer skilled file progress previously yr leading to 18 million accounts and $80 billion in buyer property.

Grow to be a wiser investor with CNBC Professional
Get inventory picks, analyst calls, unique interviews and entry to CNBC TV. 
Signal as much as begin a free trial as we speak.