The FinancialAccording to the New York Times, the popular online equities trading platform Robinhood has secured a whopping $1 billion to stay afloat and continue to provide execution in equities trades following the trading frenzy that ensued this week with crowd trading of stocks like GameStop, AMC Theaters and Bed Bath & Beyond.
While the company is now also entangled in a legal battle with a class-action lawsuit filed by traders who could not continue to buy the stock and were left with “close only” functionality, it needed a significant influx of capital to continue operations and make good with clearing venues and liquidity providers. As NYT points out, “to continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.”
While the current media attention is focused on how the “little guys” beat the “big guys”, it’s important to study this case to understand if the traditional, centralized online equities trading market can withstand such massive and immediate demand for individual stocks and what implications such surges in demand have for protecting retail stock traders and smaller investors.