Credit & Capital

Robinhood Raises $1B Amid GameStop Firestorm

The stock trading app company also accessed $500 million through existing credit lines.
Lauren MuskettJanuary 29, 2021

The trading app Robinhood raised $1 billion and drew from an existing credit line amid widespread backlash from investors and lawmakers over its decision to limit trading in GameStop and other securities after a Reddit-inspired run-up in the share price of the video-game retailer.

Robinhood co-chief executive officer Vlad Tenev said in an interview on CNBC that more capital was needed to “deposit with the clearinghouses, and that will allow us to enable ideally more investing with fewer restrictions.

In the wake of huge price swings and a frenzy of retail trading in 13 securities, including GameStop, on Thursday Robinhood didn’t allow clients to sell their positions and it raised margin requirements on the stocks.

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“To prudently manage the risk and the deposit requirements, we had to restrict buying in these 13 stocks,”  Tenev told CNN on Thursday.

“We’re in a historic situation where there’s a lot of activity and a lot of buying concentrated in a relatively small number of symbols that are going viral on social media. We haven’t really seen anything like this before.”

Tenev also denied accusations that the trading restrictions were undertaken to protect hedge funds that risked huge losses amid the short squeeze.

“I want to be 100% clear. This decision was not made on the direction of any market maker or other market participants,” Tenev said.

In a separate interview, Tenev said the decision to draw down on the credit line was a “proactive measure.”

On Monday, Melvin Capital Management announced it had raised $2.75 billion from Citadel and Point72 amid speculation it faced bankruptcy over losses it took on its short position in GameStop. Citadel Securities drives enormous revenue to Robinhood by paying the app for order flow.

In a statement Thursday, Citadel Securities said it had not, “instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business.”

GameStop shares closed at $193.60 on Thursday after reaching a high of $483 earlier in the week. Shares jumped again on Friday, opening at $379.91.

Representative Alexandria Ocasio-Cortez, Senator Ted Cruz, and Representative Maxine Waters, who chairs the House Financial Services Committee, have said they supported hearings on Robinhood’s trading halt.