Despite the rejection of any arrangement with funders on Wall Street, the belief is widespread that the inability to buy these specific businesses was coordinated to disadvantage retailers. Meanwhile, some explanations have been given about the events involving the Substredit Wallstreetbets and the business model of a company like Robinhood, indicating that their moves resulted in market makers and hedge funds also participating and possibly profiting from the frenzy.
Aptly named WeBull CEO Anthony Denier spoke to Yahoo Finance and said that the temporary restriction on Koss, AMC and GameStop trading was not a “political decision” and instead had to do with “settlement mechanisms in the market”. As he explained, they have to fund each trade with a central clearinghouse for two days, and the cost of collateral for WeBull’s clearing company has become too expensive to cover the cost on their trader’s behalf.
NEW: The CEO of Webull announced that the decision to work with Robinhood to restrict AMC and GameStop trades was due to the increasing cost of executing its users’ trades:
“It wasn’t our choice … it has to do with settlement mechanics in the market.” Pic.twitter.com/Micz5U6SRc
– Zack Guzman (@zGuz) January 28, 2021
In a blog post, Robinhood said it had “made a risk management decision” and similarly stated in interviews, “We have SEC net capital requirements and clearing house deposits … some of these requirements fluctuate significantly due to market volatility and they can be significant in the current environment where these names that have gone viral on social media are very volatile and concentrated. “
In response to reports that Robinhood had drawn on its credit lines, CEO Vlad Tenev said his company had no liquidity problems and “we have drawn these lines of credit so that we can maximize the funds we need to deposit with clearing houses within a reasonable range can.” The New York Times reports that Robinhood has drawn down $ 500-600 million lines of credit to meet lending requirements and raised $ 1 billion in emergency funding Thursday night to avoid that further trade restrictions need to be established.
These requirements are there to protect investors and the markets, and we take our responsibility to meet them seriously, including through the actions we have taken today.
– VLAD (@vladtenev) January 28, 2021
Starting tomorrow, we plan to make limited purchases of these securities. We will continue to monitor the situation and make adjustments if necessary.
– VLAD (@vladtenev) January 28, 2021