“As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits,” the company wrote. That wariness of regulators showed up in Robinhood’s statement Thursday afternoon. Especially given that Robinhood also may have helped spark a sell-off Thursday morning GameStop is down 44 percent from Wednesday’s close, and losses in stocks like AMC have been even more dramatic. “It’s a little late to do it to protect the customer base,” says Gabriel Rauterberg, a professor at the University of Michigan’s law school and coauthor of The New Stock Market: Law, Economics, and Policy.

Then again, if Robinhood had its users’ best interests in mind, it could have made this exact move days ago GameStop’s stock has long since abandoned any pretense of relating to the company’s fundamental financial outlook. “But there’s a really good question of how paternalistic should the brokerage firm be?” “There’s definitely a history of this kind of paternalism,” Angel says. Restricting stock trades also isn’t unique Angel points out that many brokers don’t let customers trade in penny stocks without special authorization, for instance. In that interpretation, Robinhood is something like a bartender cutting things off before the party turns into a riot. “When Robinhood sees a situation that they know is going to end really badly, they’re going to be worried that if they don’t do something, people are going to come back and say, ‘Why did you let me buy this stock at $300?’”įinancial experts universally agree that GameStop will eventually crash back to a price that reflects its actual fundamentals, and when it does, a lot of people are going to find themselves on the wrong side of that trade and lose a whole lot of money. “They’ve gotten a lot of criticism that it makes it too easy to trade, too much fun to trade,” says Jim Angel, who specializes in market structure and regulation at Georgetown University’s McDonough School of Business. On December 16, the state of Massachusetts accused Robinhood of “aggressively targeting young, inexperienced investors” and exposing them to “unnecessary risk.” It’s the latest in a long arc of accusations that Robinhood’s playful interface makes buying and trading stocks too easy and downplays the downside risk. “To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” Robinhood said of the restrictions it imposed on Thursday.Īnother complaint, filed around the same time as the SEC settlement, might be more instructive when it comes to Robinhood’s actions Thursday. Robinhood did not admit or deny any wrongdoing as part of the agreement. It wouldn’t be the first time the company allegedly put those big bankrolls first in December it paid a $65 million fine to the Securities and Exchange Commission to settle charges that it had misled users about the revenue it made selling its customers’ orders to third-party trading firms. Many of Robinhood’s detractors accuse the company of acting in the interest of institutional short sellers rather than the individual retail investors that rely on it. The volume of trading suggests that some institutional investors may have hopped on as well. The higher the stock price rose, the more the shorts had to buy to cover their losses, turning a snowball into an avalanche. It goes like this: Traders on the WallStreetBets forums on Reddit and Discord, inspired by a new GameStop board member and the opportunity to squeeze short sellers like Citron Research, funneled their disposable income into shares of the beleaguered retailer. Understanding Thursday’s fracas requires a brief history of why GameStop shot up 1,700 percent this month. And while experts say that Robinhood was within its legal and regulatory rights to shut down the stonks party, its users are up in arms. You could still sell those stocks-most of which still rank among the most widely held on the platform, according to the Robinhood app’s frequently updated “Most Popular” list-but otherwise? No dice. That veneer has shown cracks over the years, but perhaps none so visible as this morning, when Robinhood users found themselves unable to purchase the so-called meme stocks, like GameStop and AMC, that the WallStreetBets community on Reddit had recently sent soaring. The online brokerage Robinhood launched in 2013 with an egalitarian pitch worthy of its namesake: commission-free trading on a platform that has the common investor’s interests at heart.

Robinhood blocks game