- Robinhood’s deposit requirements related to equities increased by 10-fold amid the GME buying frenzy led by Redditors.
- In a company blog post, the trading app explained it had to implement trading restrictions in order to “comfortably” meet security requirements mandated by SEC-registered organizations.
- Robinhood came under fire this week for temporarily blocking trades of 13 equities including GameStop, AMC, and Nokia.
- Visit Insider’s homepage for more stories.
Trading app Robinhood has offered new details on its decision to temporarily restrict the trading of GameStop, AMC, and other stocks amid a Reddit-fueled buying frenzy, saying the move was the result of a spike in its legally-mandated deposit requirements.
In a company blog post published on January 29, Robinhood said its deposit requirements related to equities had increased by 10-fold in a week, and it had to block purchases of some stocks to “comfortably” meet security requirements mandated by SEC-registered clearinghouses, the company wrote.
The blog post explained that clearinghouses look at a firm’s customer holdings and at the volatility of specific stocks, and can raise its deposit requirements as a result.
“It was not because we wanted to stop people from buying these stocks,” Robinhood wrote. “We did this because the required amount we had to deposit with the clearinghouse was so large — with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements — that we had to take steps to limit buying.”
Robinhood came under scrutiny this week for restricting the trading of 13 equities, including GameStop, BlackBerry, Nokia, and AMC. Though Robinhood has since lifted that ban, it didn’t take long for people to publicly criticize the company and cause damages to its brand image.
Read more: The 7 public relations execs Robinhood tasked with fixing its image following the GameStop fallout
New York Rep. Alexandria Ocasio-Cortez, for example, described Robinhood’s decision as “unacceptable.” The brokerage app is also facing a class-action lawsuit from users, Insider previously reported.
Robinhood has since raised $1 billion from investors to meet cash demands. Nevertheless, it alienated a core customer base, and it might be hard for the company to regain customer confidence amid user outrage, The New York Times reported.
“This is a dynamic, volatile market, and we have and may continue to take action to make sure we meet our requirements as a broker so we can continue to serve our customers for the long term,” the company wrote on its website. “Rest assured, our position remains firm—we stand with our customers and will continue to provide you with the resources and tools you need to become a confident, informed investor.”
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