Robinhood’s annoying reason shut down GameStop, another memes-sharing exchange

The self-proclaimed Democratic financial app Robinhood was criticized Thursday for stop trading on GameStop shares and other preferred shares by the Reddit WallStreetBets community. But while critics have accused the broker of frustrating amateur investors to shield major Wall Street companies from mounting losses, Robinhood says the real explanation is much more boring: He just couldn’t afford to keep pace. .

You see, when buying or selling stocks, the exchange goes through an intermediary clearinghouse that makes sure everything is to mutualize the risk. Clearing houses, which are registered and approved by the Securities and Exchange Commission, record the transaction, as well as collect and negotiate the payments once the buyer and seller agree on a price. They also enforce deposit requirements, a form of risk management to protect themselves in the process, which means brokers must deposit a certain amount of collateral to ensure their trades go through. Apparently, Robinhood’s clearinghouse increased those deposit requirements this week, likely because it was scared of the volatility of rising stock prices for GameStop, AMC, BlackBerry and other battered companies that users of. Reddit put on the watch in an effort to ruin coverage. funds that bet heavily against you.

“To put it in perspective, this week alone our mandatory inventory clearinghouse deposit requirements have increased tenfold,” Robinhood said in a blog post Posted Friday evening. “And this is what led us to place temporary purchase restrictions on a small number of securities for which clearing houses had increased their deposit requirements.”

The broker also pointed out that it did not go out of business to harm retail investors. Speculation that Robinhood has withdrawn from trading certain stocks on behalf of hedge fund managers, the US government or other big cats to safeguard their financial interests has spread online since the company’s decision.

“It wasn’t because we wanted to prevent people from buying these stocks,” Robinhood continued. “We did this because the required amount that we had to deposit with the clearinghouse was so large, with individual volatile securities representing hundreds of millions of dollars of deposit requirements, that we had to take action. to limit the purchase of these volatile securities from us. made sure it could comfortably meet our requirements.

If this is true, it is unclear why Robinhood did not immediately give this explanation, but instead allowed time for conspiracy theories to rot online about corruption and nefarious conspiracies to crack down on amateur investors who bet on everything. Of course, it is likely that speculation would have arisen again no matter what (we are talking about the Internet after all), but to omit this information and only affirm that the decision has been made “protect investors, “Like Robinhood did on Thursday, he is still suspicious as hell.

Namely, Google deleted at least 100,000 negative reviews Robinhood from the Google Play Store after angry users submitted tons of critical reviews and dipped the app’s rating. Robinhood’s restrictions also sparked two class actions, one for alleged violations of your customer agreement and another for allegations of antitrust violations, filed by the same lawyer who is currently issuing Alex jones her ass in court. Congress was even retired on the drama GameStonks and plans an investigation. The Securities and Exchange Commission is monitor the situation as well.

This strange saga seems far from over, so buckle up. And invest wisely.