Robinhood raises another $2.4 billion from shareholders
The $3.4 billion raised since last Thursday is more than the company has raised in its life
Robinhood Markets Inc. raised another $2.4 billion from shareholders, days after investors agreed to pump $1 billion into the online brokerage to help it ride out a trading frenzy in popular stocks including GameStop Inc.
The huge infusion—the $3.4 billion raised since last Thursday is more than the company has raised in total up until this point in the eight years since its launch—gives Robinhood a war chest to cover a surge in collateral requirements stemming from the trading boom, people familiar with the matter said.
It also should allow the company to support the hundreds of thousands of new accounts users opened since Thursday and to remove many of the trading restrictions that angered customers of the popular brokerage, the people said.
The fundraising deal was structured as a note that conveys the option to buy additional shares at a discount later, the people said.
Customers flooded Robinhood and other brokerages with orders to buy and sell a handful of popular stocks last week. GameStop GME, -60.00%, the stock that kicked off the retail surge, closed Friday at $325. It began the year at under $20. AMC Entertainment Holdings Inc. AMC, -41.20%, the battered movie-theater chain, is up more than 500% in 2021.
The wild price swings prompted the clearinghouse that processes and settles the trades to ask for more cash to cover potential losses on the transactions.
Because of a lag between when investors book new positions in a stock and when their cash is actually exchanged for securities, brokerages such as Robinhood have to maintain deposit accounts at the clearinghouses that help finalize trades. The Depository Trust & Clearing Corp., which operates the main clearinghouse for U.S. stock trades, requires brokerages to post more of their own money in riskier times to insure against losses.
In an interview posted online late Sunday, Robinhood Chief Executive Vlad Tenev said the clearinghouse initially asked for $3 billion to back up the trades—“about an order of magnitude more than what it typically is.” Robinhood restricted buying in more than a dozen stocks and related options on Thursday, which helped lower the amount of collateral it needed to post to $700 million.
The trading restrictions enraged many Robinhood customers, who took it as a sign that Wall Street was closing ranks. The GameStop rally had dealt painful losses to some hedge funds that had bet the retailer’s shares would fall.
Robinhood has since loosened many of the buying limits put in place last week. At one point, the list of restricted stocks had swelled to more than 50. On Monday afternoon, Robinhood had buying limits on eight popular stocks, including GameStop.
The huge infusion—the $3.4 billion raised since last Thursday is more than the company has raised in total up until this point in the eight years since its launch—gives Robinhood a war chest to cover a surge in collateral requirements stemming from the trading boom, people familiar with the matter said.
It also should allow the company to support the hundreds of thousands of new accounts users opened since Thursday and to remove many of the trading restrictions that angered customers of the popular brokerage, the people said.
The fundraising deal was structured as a note that conveys the option to buy additional shares at a discount later, the people said.
Customers flooded Robinhood and other brokerages with orders to buy and sell a handful of popular stocks last week. GameStop GME, -60.00%, the stock that kicked off the retail surge, closed Friday at $325. It began the year at under $20. AMC Entertainment Holdings Inc. AMC, -41.20%, the battered movie-theater chain, is up more than 500% in 2021.
The wild price swings prompted the clearinghouse that processes and settles the trades to ask for more cash to cover potential losses on the transactions.
Because of a lag between when investors book new positions in a stock and when their cash is actually exchanged for securities, brokerages such as Robinhood have to maintain deposit accounts at the clearinghouses that help finalize trades. The Depository Trust & Clearing Corp., which operates the main clearinghouse for U.S. stock trades, requires brokerages to post more of their own money in riskier times to insure against losses.
In an interview posted online late Sunday, Robinhood Chief Executive Vlad Tenev said the clearinghouse initially asked for $3 billion to back up the trades—“about an order of magnitude more than what it typically is.” Robinhood restricted buying in more than a dozen stocks and related options on Thursday, which helped lower the amount of collateral it needed to post to $700 million.
The trading restrictions enraged many Robinhood customers, who took it as a sign that Wall Street was closing ranks. The GameStop rally had dealt painful losses to some hedge funds that had bet the retailer’s shares would fall.
Robinhood has since loosened many of the buying limits put in place last week. At one point, the list of restricted stocks had swelled to more than 50. On Monday afternoon, Robinhood had buying limits on eight popular stocks, including GameStop.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
