Senator Cruz and Rep AOC Harp on Robinhood over Gamestop Trading Ban
Posted on 01/28/2021
Robinhood, Interactive Brokers, and Webull all had restricted trading in companies like GameStop (ticker: GME). Citing “recent volatility”, Robinhood announced earlier in the day that it had limited trade in GameStop and other stocks targeted by investors on the WallStreetBets (WSB) Reddit forum.
The move sent shares of GameStop down.
Clearing House Costs
CEO of Webull, Anthony Denier in comments to Yahoo Finance said he had no choice to restrict GameStop and other securities. Denier said Webull’s clearing firm gave them a call and told them to stop allowing new opening positions in the three names, $AMC, $GME, and $KOSS. DTC is a central clearing house and due to the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive, in some instances 3x the normal clearing cost. DTC is a subsidiary of The Depository Trust & Clearing Corporation (DTCC).
Bloomberg reports Robinhood has drawn down some of its credit lines with banks – at least several hundred million dollars. These lenders include JPMorgan Chase & Co. and Goldman Sachs Group Inc. Robinhood is dealing with net capital requirements from the SEC.
Bi-Partisan Populism Gaining Traction Against Wall Street
House Rep. Alexandria Ocasio-Cortez (AOC), U.S. Senator Ted Cruz, and other lawmakers criticized Robinhood after it restricted trading in GameStop and other companies targeted by the WallStreetBets forum. The U.S. House Financial Services Committee could open an investigation into Robinhood’s moves during this time and its current practices. Rep. Maxine Waters, D-Calif., the chair of the Financial Services Committee, said later that she would hold a hearing to examine GameStop “and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors.”
Even Donald Trump Jr., son of former President Trump tweeted, “Any Republican in Washington DC worth a damn should be calling for an immediate investigation into Robinhood and Citadel. And while they’re at it, subpoena Janet Yellen & lets find out if there was pressure coming from the Biden Admin to protect their cronies on Wall Streeet!!!”
Like many former officials of the Federal Reserve like Greenspan and Bernanke, Janet Yellen was paid speaking fees by financial institutions after her role as Fed chair. Yellen was paid speaking fees from Citadel, a company that buys order flow from Robinhood. Yellen is the current U.S. Secretary of Treasury.
Class Action
Furthermore, a group of individual investors filed a class-action complaint in the U.S. Southern District of New York against Robinhood. This after the trading app restricted users from buying GameStop shares. The complaint asks that Robinhood immediately reinstate GameStop trading and pay damages to its traders.
The class action, initiated by Brendon Nelson states, “Robinhood purposefully, willfully, and knowingly removing the stock “GME” from its trading platform in the midst of an unprecedented stock rise thereby deprived retail investors of the ability to invest in the open-market and manipulating the open-market.”
Resume Trading Tomorrow
At around 1:20 PM PST, Robinhood said it will resume limited trading on shares of GameStop, AMC, and others for tomorrow. Robinhood said, “Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed.”
GameStop shares rebounded in after-hours trading following the Robinhood decision.
Net Capital Requirements
Vladimir (Vlad) Tenev, a co-founder of Robinhood, tweeted the following out:
SEC
The SEC’s enforcement arm is expected to be asking for “blue sheet” customer trading data from Robinhood.
Blue Sheet Data
Electronic Blue Sheet (EBS) data files, which contain both trading and account holder information, provide regulatory agencies with the ability to analyze a firm’s trading activity. Firms are expected to provide complete, accurate and timely Blue Sheet data in response to regulatory requests. Incomplete, inaccurate and untimely Blue Sheet data compromises regulators’ ability to identify individuals engaging in insider trading schemes and other fraudulent activity. Source: FINRA.
List of Disabled Stock Tickers (at one point)
Robinhood – $BBBY, $AMC, $NOK, $BB, $KOSS, $EXPR, $GME. $NAKD, $AAL, $SNDL
Interactive Brokers – $AMC, $BB, $EXPR, $GME, $KOSS
Merrill Lynch – $AMC, $GME
Webull – $AMC, $GME, $SNDL, $NAKD
Tastyworks – $AMC $KOSS $GME
ETrade – $GME $AMC
Keywords: Robinhood Financial LLC. Robinhood Securities LLC. Robinhood Markets Inc.
