Robinhood Markets Inc, the leading zero-fee stock trading app provider, stated on Friday (February 26, 2021) that US regulatory authorities were investigating the firm’s temporary trading restrictions on these so-called “meme stocks” earlier in 2021. These activities have come under increased scrutiny as the shares of companies such as GameStop Corp surged dramatically during a social media-led short-squeeze (with many of these activities being coordinated via Reddit).
Robinhood, whose popular stock trading app has attracted millions of users during the last year, also mentioned in the SEC regulatory filing that it has put aside around $26.6 million for a possible settlement related to trading outages that took place in March of last year, along with concerns over its options trading guidelines.
Menlo Park, California-headquartered Robinhood Markets has been at the center of the craze that gripped retail traders during January 2021, which were led by calls to action via the highly popular Reddit thread WallStreetBets. The members of the group had encouraged people to aggressively trade various stocks that had been shorted by many major hedge fund managers.
The dramatic rise in this type of activity led to huge increases in the share prices of certain stocks. And then Robinhood, along with other brokerages, began limiting the purchasing of such stocks, which included GameStop and AMC Entertainment Holdings Inc. This move led to many complaints from Robinhood clients.
Robinhood’s management then later proceeded to remove these trading restrictions and claimed that the move was required because of the significant increase in clearinghouse collateral needed.
Robinhood, which may do an IPO this year with an estimated $20 billion valuation, claims over 13 million users with a median age of around 31, according to the Fintech firm’s latest estimates.
Robinhood’s trading app outages in March 2020 had come as global financial markets reacted quite negatively and crashed hard following the COVID-19 outbreak.
Robinhood stated that it’s currently in settlement discussions with the Financial Industry Regulatory Authority regarding the March platform outages, and the company is also addressing issues related to its options trading guidelines.
The firm confirmed that it had received inquiries from the US Securities and Exchange Commission (SEC), FINRA, and also the New York Attorney General’s Office (NYAG).
The SEC and other regulatory agencies are also looking into cases or incidents of unauthorized account takeovers of Robinhood clients, the firm revealed.