The scandal surrounding the sharp rise in low-liquid shares of American companies continues after massive manipulations. On the night from Friday to Saturday, the fintech broker Robinhood partially reversed its decision to ban the trading of GameStop and several dozen other securities.
“Opening new positions in the securities listed in the table below is currently allowed, but limited.”
To date, investors can purchase only one share from issuers from the list, and the option of a new “fractional” purchase, that is, some part of one security, is deactivated. The latter does not apply to current open trading positions.
“Fractional shares are currently position closing only for all of the securities listed in the table above. This means you can sell and close your fractional positions, but you can’t open new fractional positions. However, you can still open new whole share positions according to the limits listed above.”
The actions of market participants led to new surges in quotations, which, in fact, levels out previous attempts to “calm down” the situation around the “pump”. In particular, GameStop shares soared by tens of percent again, almost reaching the previous all-time high.
On Friday, the service also had to restrict trading operations with cryptocurrencies due to “an extraordinary situation in the market”. The decision was made against the backdrop of Bitcoin and Dogecoin skyrocket. The latter grew by more than 350%. The broker has closed instant deposits for buying cryptocurrency. This means that users can only buy digital assets with funds that have already been deposited into accounts.
Cases, when shares of troubled issuers find themselves in a situation of strong market pressure, are not so rare. Major players of the stock market have been interested in the securities of GameStop since 2019 in particular. The current wave of discontent from retail investors is almost spontaneous. They decided to “deprive money of greedy funds” that open short positions on similar assets and make money on speculative trading. Probably, Reddit users who took a direct part in the coordinated “acceleration” of quotes, saw this as an injustice. Some analysts say that this is how the crowd expresses its protest against established institutions. However, the multiple growth in the share price also promised them a good profit.
Robinhood service was chosen as an “entrance” to the market. On Wednesday, January 27, the app suddenly landed on the first line in Apple’s App Store, with active users hitting a record 2.6 million. The massive purchases of highly volatile shares by the site’s clients almost immediately aroused management concerns about the amount of collateral required for such transactions. On the broker’s official Twitter page, there is a link about the risks investors bear when choosing a particular strategy of market behavior. The co-founder and CEO of the project Vladimir Tenev explained the company’s decision on the first ban on trade precisely by economic considerations.
In an interview with CNBC, he denied rumors that he was under pressure from the regulator or institutional players – funds that suffered losses in open positions due to the rapid growth of quotations. It was decided to introduce trading limits as a proactive measure in order not to get into a situation of lack of liquidity to meet capital reserve requirements. Tenev also assured users that the current state of the broker itself does not cause concern. At the same time, the company’s liberal approach to the organization of retail, he said, has already been criticized, which increases the likelihood of new restrictions.
Despite the fact that the company’s management emphasizes that it has become a hostage of the current situation and is not trying to “help” large funds to reduce losses by prohibiting users from further participating in the acceleration of stock prices, direct accusations of collusion appear on the network.
In connection with this position, users of Robinhood platform filed a class-action lawsuit against the broker. They write that the company “abruptly and purposefully deprived them of their ability to use the application by removing the issuer from the search.” The service was accused of not protecting the interests of its customers.
According to Crunchbase, Robinhood raised about $ 3.2 billion in venture capital investments over 19 rounds. The last attraction is dated January 29, 2021, for $ 1 billion.
The total number of investors who have taken part in financing a startup since 2013 has reached fifty. Sequoia Capital and Ribbit Capital are considered key. Robinhood’s last known estimate was announced in September 2020. According to PrivCo, it has reached more than $ 10 billion.
Throughout 2020, the popularity of the fintech app for trading in the stock market grew due to quarantine restrictions and monetary assistance from the US government. In December, the total number of registered users exceeded 13 million.
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