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Robinhood: Stocks Had To Be Shut Down Over High Deposit Requirements

Robinhood, the stock trading app purporting to let anyone join in the market, answered questions in a blog post on why it had shut down certain securities like GameStop.

The company said in the post it had to do with clearinghouse requirements.

According to the post, the company has to meet those requirements by 10 a.m. every trading day in order to support the customer trades between the trade date and when the trades settle. The company withdraws money on some days and deposits money on other days, depending on the requirement for that day.

Robinhood called the way clearinghouses work “pretty technical” as they look at a firm’s customer holdings as a portfolio, using a volatility multiplier that looks at specific stocks to quantify their risks. After that, the clearinghouses can assign significant other changes based on how much of one stock is held by a firm. If a firm’s customers have more buy than sell orders, and the securities they’re buying are more volatile, the deposit requirement would be higher.

In addition, Robinhood said in the post that clearinghouses can require extra deposits if some thresholds are met.

Last week, as Reddit users bought shares of GameStop and other “meme stocks” en masse, Robinhood said in the post that the amount required by clearinghouses to cover the settlement period “rose tremendously.”

“How much?” the post stated. “To put it in perspective, this week alone, our clearinghouse-mandated deposit requirements related to equities increased ten-fold. And that’s what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.”

Robinhood said its actions were “not because we wanted to stop people from buying these stocks,” but instead because the required amount the company had to deposit with the clearinghouse was big enough that it had to limit buying those volatile stocks so it could meet the requirements.

Robinhood faced backlash over its actions, with retail traders in two states filing lawsuits, PYMNTS reported, alleging that Robinhood had tried to slow the growth of GameStop stock for the benefit of donors.

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