U.S. stock trading platform Robinhood Markets is raising more than $1 billion in funding from its existing investors due to capital pressure from a massive deal.
The company contacted investors including venture capital firms Sequoia Capital and Ribbit Capital, which gathered on Thursday night to provide emergency funding, the report said, citing five people involved in the negotiations.
The U.S. Securities Depository and Clearing Corporation (DTCC) requires high collateral from brokerages, including Robinhood; and it is retail investors trading on these brokerage platforms that have contributed to the wild rally in stocks like GME.
The Silicon Valley company with the popular no-trading-fee App has come to a crossroads.
In an effort to curb its own risk, Robinhood has banned certain trades and lifted customer bets, sparking outrage from customers and even some U.S. political figures.
In an interview with CNBC this morning, Robinhood CEO Vlad Tenev explained that its goal in limiting trading in WSB stocks was not to help short sellers, and Tenev said they had to limit purchases of those stocks because they wanted to protect the company and protect their customers.
Previously, Robinhhood said that as a securities brokerage firm, the regulator SEC has many financial requirements for them, including net capital and Depository and Clearing Corporation (DTCC) deposit requirements. And some of those requirements can reach risk thresholds due to dramatic market volatility, and that risk is so high in the current environment that they must make moves to protect investors and the market.
In addition, Thomas Peterffy, chairman of PCS, said the existence of call options in the GME market has reached a staggering $15 billion, and he is afraid that funds shorting GME will not be able to pay this amount and that the shorting side will not be able to make margin calls fast enough to keep up with rising stock prices.
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