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Robinhood is in sizzling water once more, however this time it is due to another person’s liquidity disaster.
The digital trade backpedaled furiously Thursday on its determination to refuse merchants cashing out their brief bets towards failed Signature Financial institution, after realizing that it must honor choices contracts bought on its platform regardless of its reasonably hazy ban on brief promoting.
This? Once more?
This isn’t the primary time Robinhood has acted like a despot regardless of its declare to be “democratizing finance.” In January 2021, when a Reddit-fuelled frenzy super-charged the worth of meme shares, Robinhood — going through a sudden liquidity disaster — stopped customers from shopping for inventory in corporations together with Gamestop and AMC.
This time Robinhood was caught out by brief promoting, i.e. betting that an organization’s shares will lower in worth, and profiting off the distinction. When crypto-exposed Signature’s inventory began to plunge because the inexorable domino that was Silicon Valley Financial institution hurtled towards it, some canny customers purchased put choices. After Signature was shuttered by New York State regulators, Robinhood’s knee-jerk response was to inform customers that they could not train their choices contracts, which have been set to run out on Friday.
The shopper uproar and public backlash that adopted appear to have pressured Robinhood right into a U-turn:
- Robinhood told the Monetary Instances it might be keen to go to market to purchase up shares so it will possibly honor its contracts with customers. Discovering shares for a financial institution that is already lifeless within the water could possibly be tough, so Robinhood may need to get artistic.
- Customers are sitting on some fairly hefty features from foretelling Signature’s demise. One Robinhood person, a former financial institution dealer referred to as Shaun William Davies, advised the FT his $3,445 commerce ought to have became $25,000. “It is loopy that you simply make the precise guess however that it is so proper, you’ll be able to’t receives a commission,” he mentioned.
Cryptoo-de-lally: Signature’s disintegration is not the one crypto-themed headache Robinhood is experiencing. The corporate introduced on the finish of final month it had obtained an investigative subpoena from the SEC over its crypto listings following the seismic implosion of FTX. Robinhood permits customers to commerce crypto tokens together with Bitcoin, Ethereum, and the super-serious Dogecoin. Digital brokers make plans and God laughs… or perhaps they do not make plans, and he laughs even more durable.