Robinhood Markets, the trading app that’s popular with investors behind this month’s wildest stock swings, has drawn down some of its credit lines with banks, according to people with knowledge of the matter.
The firm has tapped at least several hundred million dollars, one of the people said. The company’s lenders include JPMorgan Chase and Goldman Sachs, according to data compiled by Bloomberg. Representatives for Robinhood and those banks declined to comment.
The behind-the-scenes rush to bolster Robinhood’s finances adds to signs that recent market havoc is putting a strain on the company, which has signed up throngs of retail investors for its app during the pandemic. The firm is among brokerages that clamped down on trading in shares of GameStop and AMC Entertainment Holdings on Thursday, setting off outrage among customers. Robinhood also told users it may close out some of their positions as it takes steps to reduce account risks.
“As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits,” Robinhood said in a blog post Thursday. “Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.”
The extreme volatility “generated substantial risk” for brokerages, resulting in the need for stricter requirements on those firms, according to the Depositary Trust & Clearing Corp.
“When volatility increases, portfolio margin requirements increase too,” Wall Street clearinghouse DTCC said in an emailed statement.
With its user-friendly app and commission-free trades, Robinhood grew swiftly in recent years and then all the more during the pandemic, becoming the platform of choice for legions of people turning to stock markets to earn money and pass time during lockdowns. For months, the firm has been expected to hold an initial public offering this year.
But this month’s drama around a surge in prices for GameStop and AMC, coordinated by investors on Reddit, has put Robinhood at the center of controversy. The company said after the close of U.S. trading on Thursday that it will allow “limited buys” to resume in certain affected securities.
Robinhood has leaned on its credit with banks to weather turmoil before. In March, the firm drew down an entire $200 million facility from a trio of lenders, people familiar with the matter said at the time, as the coronavirus pandemic set off a flood of transactions and steep market swings, during which Robinhood’s trading platform suffered repeated outages.
–With assistance from Misyrlena Egkolfopoulou.