When sentiment about the rapid strengthening of certain stocks due to heavy buying by speculative retailers. A Robinhood brokerage firm on Thursday finally restricted trading in thirteen equities, including GameStop and AMC Entertainment.
Robinhood CEO Vlad Tenev said Robinhood’s move to limit Gamestop’s stock trading was in the best interests of the company and its millions of users.
“To protect the company and protect our customers, we must limit purchases in this stock,” Tenev told CNBC’s Andrew Ross Sorkin late Thursday.
“Robinhood is a brokerage firm, we have a lot of financial requirements. We have SEC net capital requirements and clearing deposits. So that’s the money we have to deposit at various clearing houses.” Tenev said
“Some of these terms fluctuate quite a lot based on the volatility in the market. And also could be substantial in today’s environment where there is a lot of volatility and a lot of activity is concentrated in these names which have gone viral on social media,” he continued.
Tenev denied any liquidity problems existed at the company and said Robinhood had used a line of credit as a proactive measure.
“We want to put ourselves in a position that allows our customers to be as minimal as possible according to the requirements and regulations,” said Tenev.
“So we drew the credit limit so that we could maximize the funds we had to deposit at the clearing house.”
Only Allowing Clients to Sell Shares
The pioneer of cheap stock trading platforms only allows clients to sell those shares. Not to open new accounts, increase the margin amount. And even the company will close some accounts automatically if the risky client does not have the necessary collateral.
Robinhood said after Thursday’s close of trading, it would open a limited number of shares in the following trading day.
This decision was also responded to by angry actions from its loyal retail investor group. However, Robinhood explained that the move was made to meet SEC mandated capital requirements for broker dealers.
Tenev also said that the decision was not to defend against the dealer or the hedge fund.
“Of course Robinhood represents its investors. From the very beginning we supported investors who have opened their accounts. But it does hurt that we have to enforce these limits. And we will do what we can to activate this stock trading as quickly as possible,” Tenev said.
Meanwhile, GameStop shares closed down 44% on Thursday (28/1/21) local time after Robinhood imposed restrictions on the stock’s trading. Then, jumped more than 60% in the aftermarket market after the decision was finally relaxed.
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