Robinhood almost ruptured during GameStop Meme Stock Chaos

An anonymous reader cites TechCrunch’s report. House Committee on Financial Services released I saw you last week Giving you a gruesome peek inside Robinhood during the frenzy for Gamestop stock earlier last year. stock trading and investment app Blinded by the surge of interest In the first big “meme stock” after Redditors and other private investors rallied around $GME and sent that price into the stratosphere. For Robinhood, which offers individual investors a relatively frictionless way to dive into the stock market, the saga was at the same time a huge windfall of new users and brand interest and an existential threat that nearly devoured the company.

Maxine Waters (D-CA), chairman of the House Financial Services Committee, secretly urged an in-depth analysis of what happened, new report, “The Game Has Stopped: How Meme Stock Market Events Exposed Problematic Business Practices, Inappropriate Risk Management, and the Need for Regulatory and Legislative Reform,” gathers the Commission’s findings. The report included below is excerpts from several hearings, 95,000 pages of documents and 50 interviews. “Our committee’s investigation of this issue has shown that better market regulation is needed to address the problematic business practices that emerged during our investigation,” Waters said. “Pay-to-order flow and gamification provide profitability for a new generation of trading apps that are making markets more volatile than ever by allowing retail investors to trade as many as possible.”

The committee described Robinhood’s business as “problematic”, which favored aggressive growth without adequate risk management. The report also found that most financial companies surveyed by the committee had no plans to prepare for another risky phase of “extreme” market volatility. According to the report: “On the morning of January 28, 2021, Robinhood had already deposited approximately $696 million in collateral with NSCC, leaving a collateral deficit of approximately $3 billion. It is risky and could potentially result in a complete loss of the ability to clear trades for clients. [President and Chief Operating Officer for Robinhood’s clearing operation] Swartwout found this amount surprising to Robinhood and explained it because he had anticipated and prepared for a $1.4 billion collateral deposit requirement, representing a ‘core’ fee for commission staff, but had not modeled the excess capital premium rate, Robinhood. As such, it did not expect or arrange for adequate funding for an additional $2.2 billion in excess capital premium rates. On the morning of January 28, 2021, Jim Swartwout texted Gretchen Howard at 6:29 a.m. ET stating that he had ‘huge liquidity issues’. “There is no guarantee that history will not repeat itself and will not be shaken in any other way,” the report states. concluded. collapse.”

Further reading: FTX seeks Robinhood purchase deal

Robinhood almost ruptured during GameStop Meme Stock Chaos

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