Robinhood Raises $ 3.4 Billion Amid Record Clients and Liquidity Requirements

Robinhood has raised $ 3.4 billion and is reportedly in talks with banks to raise an additional $ 1 billion in debt to meet the requirements of the central clearing house of stock exchanges. The demand to allocate $ 3 billion as security for transactions was put forward by the chamber against the background of sharp volatility and growth in trading volumes through the Robinhood app for GameStop and others.

Online broker Robinhood said on Monday that it was able to raise $ 3.4 billion in a short time, including the $ 1 billion it raised on Friday. These are record amounts since the company was founded in 2013.

Robinhood said that “this funding is a strong sign of investor confidence.”

The latest round of funding came from Ribbit Capital and also included ICONIQ, Andreessen Horowitz, Sequoia, Index Ventures and NEA.

“This funding round will help us scale to meet the incredible growth and demand we are seeing for our platform,” said Jason Warnick, Chief Financial Officer of Robinhood.

In addition to this funding, according to Reuters, Robinhood has also begun negotiations with banks to expand its credit lines or set up a new one to raise about $ 1 billion in loans.

The GameStop Stock Story Benefits Robinhood

Robinhood has been at the center of a “sensational” market situation in recent weeks around GameStop (GME) and others. A large number of retail traders and market newcomers who make up the bulk of Robinhood’s users have speculatively traded some stocks, including GameStop, in recent weeks. Using tips on the Reddit forum, traders traded stocks that hedge funds were largely shorting. wrote more about this in the article “Wall Street Expects GameStop Shares to Fall After Speculative Growth of 145%”.

As a result of the hype, according to JMP Securities, more than 3 million users downloaded the Robinhood app in January, a record high in the company’s history.

On February 29, the Robinhood app was downloaded by more than 600,000 people, up from 140,000 on the best day in March during the Covid pandemic.

However, this boom in trading activity simultaneously created a problem for Robinhood, as the central clearing house of stock exchanges required the company to increase its liquidity by $ 3 billion to ensure the execution of transactions.

As a result, the management of Robinhood had to temporarily restrict some transactions, which caused a lot of criticism from users, and the application lost part of its audience.

What do market analysts think?

These difficulties have led some analysts to question whether the company plans to conduct an initial public offering by April.

In addition, in September 2020, the US Securities and Exchange Commission (SEC) launched an investigation into Robinhood, accusing the company of fraudulent practices in high frequency trading.

Be that as it may, raising large funding will give Robinhood the opportunity to strengthen its infrastructure to retain new investors.

In its press release yesterday, Robinhood said, “We will also continue to invest in expanding access to financial literacy to fulfill our mission of democratizing finance for all.”

Robinhood continues to restrict trading on certain stocks: as of Monday, customers could only buy one GameStop share and five options contracts. At the same time, the list of restricted stocks in the application was reduced from 50 on Friday to eight starting on Monday.

JMP expects that as a result of the funding, Robinhood will increase its capital, technology resources and people so that the application can provide full access to its customers.

Robinhood rivals such as Square Cash, Webull, SoFi, Charles Schwab, and TD Ameritrade have benefited from the Robinhood app churn, experts say.

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