Silicon Valley-based online trading app Robinhood, co-founded by Indian-American Baiju Bhatt, reportedly raised emergency funding of $1 billion from its existing investors after demands on its cash skyrocketed amid this week’s ‘extraordinary circumstances’ in the market.
The platform approached several of its investors, including the venture capital firms Sequoia Capital and Ribbit Capital, said a New York Times report.
Several traders slammed Robinhood, one of the largest online brokerage firms, for temporarily restricting buying of certain stocks including AMC Entertainment Holdings and GameStop on Thursday.
The situation arose after many individual investors traded in stocks like GameStop.
The high volume of trading this week increased demands for cash that led Robinhood to seek the emergency funding.
Robinhood is one of the top platforms that made trading online easier as it also offers no-fee trading.
Adoption of the app especially increased during the pandemic as millions of young investors who had never traded before flocked to the app.
In May, Robinhood claimed to have 13 million users, according to the NYT report.
But this week, in an apparent bid to to challenge Wall Street’s dominance, a group of online investors bid up the price of stocks like GameStop, putting big-money hedge funds that had bet against the stocks in a spot.
“Amid this week’s extraordinary circumstances in the market, we made a tough decision today to temporarily limit buying for certain securities,” Robinhood said in a blog post on Thursday.
“As a brokerage firm, we have many financial requirements, including SEC (U. Securities and Exchange Commission) net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment,” the company said.
Robinhood said that these requirements exist to protect investors and the markets.
“Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed,” it added.
“To be clear, this decision was not made on the direction of any market maker we route to or other market participants,” Robinhood CEO Vlad Tenev said in a tweet.