Robinhood almost imploded during the Gamestop meme stock chaos - Aliens: AI Crypto News & Markets Updates












Robinhood almost imploded during the Gamestop meme stock chaos


Mon, Jun 27, 2022


Aliens TLDR

For Robinhood, which offers individual investors a relatively frictionless way to dive into the stock market, the saga was simultaneously a massive windfall of new users and brand interest and an existential threat that almost did the company in.

House Financial Services Committee Chairwoman Maxine Waters (D-CA) called for a deep dive into what happened behind closed doors, and the new report , “Game Stopped: How the Meme Stock Market Event Exposed Troubling Business Practices, Inadequate Risk Management, and the Need for Regulatory and Legislative Reform,” collects the committee’s findings.

“Payment for order flow and gamification make it profitable for a new generation of trading apps to push retail investors to make as many trades as possible, making the markets more volatile than ever.” The committee described Robinhood’s business as “troubling,” citing its preference for aggressive growth without adequate risk management.

According to the report: On the morning of January 28, 2021, Robinhood had approximately $696 million in collateral already on deposit with the NSCC, leaving it with a collateral deficit of approximately $3 billion, which it was required to post to satisfy the NSCC’s clearing fund requirement or risk being in violation of the NSCC’s rules and potentially losing the ability to clear trades for their customers altogether.

On the morning of January 28, 2021, Jim Swartwout texted Gretchen Howard at 6:29 a.m. EST, writing “Huge liquidity issue.” Within Robinhood, the company’s executive leadership team held an all-hands to brainstorm about ways for the company to leverage the attention and its massive influx of new users, even as the team tasked with seeing its trades settled scrambled to “keep the lights on” with “things barely held together.” Ultimately, the company secured a waiver for its collateral requirements, paused some trades and averted disaster but there’s no guarantee that history won’t repeat itself and shake out a different way.

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