Robinhood Raises $1 Billion From Its Investors as CEO Defends Decision to Restrict Trading

January 29, 2021 6:42 AM EST

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Vlad Tenev, co-founder and CEO of Robinhood, defended the decision of his company to restrict trading in certain speculative names in order to “protect the firm and protect our customers”.

In an interview with CNBC, Tenev dismissed rumors that moves were made to please certain hedge funds.

“Robinhood is a brokerage firm, we have lots of financial requirements. We have SEC net capital requirements and clearing house deposits. So that’s money that we have to deposit at various clearing houses. Some of these requirements fluctuate quite a bit based on volatility in the market and they can be substantial in the current environment where there’s a lot of volatility and a lot of concentrated activity in these names that have been going viral on social media,” said Tenev.

“We want to put ourselves in a position to allow our customers to be as unrestricted as possible in accordance with the requirements and the regulations. So we pulled those credit lines so that we could maximize within reason the funds we have to deposit at the clearing houses,” he added.

The online brokerage firm moved to restrict trading in certain stocks. Investors would be able only to close their positions but not open new ones. Interactive Brokers made a similar move.

“We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR and $TRVG. We also raised margin requirements for certain securities,” Robinhood said in a statement.

Tenev insists that such a decision was made due to an unprecedented market environment.

“We just haven’t see this level of concentrated interest market wide in a small number of names before. We do believe that you should be able to buy and sell the stocks that you want to.

“We have seen unprecedented interest due to the fact that finance has been culturally relevant in a way that hasn’t been before. Of course Robinhood stands for everyday investors. From the very beginning we have stood for investors opening up access. It pains us to have had to impose these restrictions and we’re going to do what we can to enable trading in these stocks as soon as we can,” he concluded.

The New York Times reported earlier this morning that Robinhood reached out to its investors - including Sequoia Capital and Ribbit Capital - asking for additional funds to improve its liquidity. Investors offered the company a cash injection in exchange for equity on Thursday night, the NYT reports. Robinhood raised $1 billion this week amid the carnage, it was reported.

The online broker is set to allow “limited” buying of certain stocks today.

“We plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed. To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” the broker said in a statement.

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