Robinhood has decided to ease trading restrictions on a number of restricted stocks within days after customers heavily criticized its decision, investors, and well-known politicians. Let’s take a closer look at what Robinhood has in mind.
The online brokerage company announced the easing of trading limits on the restricted stocks this Tuesday, giving much respite to investors who can now buy up to 100 shares of GameStop.
As soon as the company announced the changes, GameStop’s stock price climbed off the last week’s lows. The game’s shares tanked as much as 60% on Tuesday, bringing its decline to more than 70% this week.
Aside from GameStop, Robinhood also raised the limits on shares of AMC Entertainment, Express, and Koss. The company had previously not imposed any restrictions on the purchase of shares of BlackBerry and Genius Brands. The company also releasedOpens a new window a revised restricted list Tuesday morning that shows the number of shares and options contracts that investors can buy.
Robinhood’s customers can now buy 100 shares of GameStop, up from the previous figure of 20. Yet, investors owning more than 100 shares already may still face restrictions as they won’t be able to buy any more shares. Similarly, investors can now buy up to 1,250 AMC Entertainment shares, up from the limit of 350 earlier.
Further, Robinhood’s customers are now allowed to buy 3,000 shares of Express, up from the previous 1,000 share limit. In addition, investors are permitted to buy up to 12,000 shares of Naked Brand Group, up from the previous restrictions of 6,500. Amid these relaxations, Nokia’s buying cap was fixed at 2,000 shares, same as the previous share limit.
See More: GameStop’s Stock Surges Even as Robinhood Halts Trading
The restrictions imposed by Robinhood last week saw retail investors going bonkers on heavily shorted stocks and, as a consequence, there was an increase in capital requirements from the Depository Trust & Clearing Corporation. Reddit-fueled traders triggered volatility as they drove GameStop’s stock up more than 400% with intentions of suppressing the hedge funds.
Even though GameStop’s stock rose, regulatory bodies played safe by increasing the amount that Robinhood needed to deposit at its clearinghouses, in a bid to handle the situations where trades could cause serious losses to the company’s customers.
Robinhood Raises $3.4 Billion in a Week
Robinhood also saidOpens a new window in a blog post on Monday that it had raised $3.4 billion from the markets to continue to invest in record customer growth, which included $1 billion in funding it had announced on 29th January. The company was also successful in raising $2.4 billion from investors amidst the severe market volatility and also tapped into credit lines for more funds, according to sources.
“This funding is a strong sign of confidence from investors and will help us build for the future and continue to serve people through the exponential growth we’ve seen this year,†the company said.
Robinhood’s CEO Justifies Trading Restrictions
During a discussion with Elon Musk on audio chat app Clubhouse last Sunday, Robinhood’s co-founder Vladimir Tenev said the move to restrict trading in stocks last week was directed at protectingOpens a new window the firm and its customers.
“We had no choice in this case. We had to conform to our regulatory capital requirements,†Tenev said, adding that Robinhood’s operations team had received a request for a security deposit of $3 billion from National Securities Clearing Corp (NSCC) to back up trades last Thursday.Â
This was because Robinhood and other brokers are required to meet certain deposit requirements from clearinghouses like NSCC every single day. The deposit amount required is decided based on various factors including volatility and concentration in certain securities. To meet the requirement, the company raised an additional $1 billion from existing investors, Tenev added.
The explanation given by Tenev was reiterated by Robinhood in a blog postOpens a new window  in which the firm said that it had imposed temporary buying restrictions on some securities to cope up with an increase in clearinghouse deposit requirements.
In Conclusion
The controversy surrounding the placing of restrictions by Robinhood on the purchase of GameStop shares gained much steam until the restrictions were lifted, but is unlikely to affect the purchases of GameStop shares in the long term. The app remains the go-to place for retail clients to trade stocks.
In order to handle the growing app customers, the company needs to focus on expanding its infrastructure, along with an increase in its capital, technology resources and people so that the app can provide full access to its newer customers.
Having said that, it remains to be seen how Robinhood approaches the market volatility situation from hereon.
Do you think the stock trading app will be able to handle the wave of new customers? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!