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The reason why financial investment platform Robinhood stopped trading GameStop shares in 2021 – find out something interesting

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On January 28, 2021, shortly after the opening bell, Robinhood and several other major trading platforms announced that they were suspending the ability to purchase GameStop stock, dealing a crushing blow to the WallStreetBets subreddit community, which had helped drive up the stock’s price by blocking new investors and sending the stock price plummeting. The rationale for this decision was that extreme volatility could create unforeseen economic problems in the future (such as an unsustainable economic bubble, etc.), but many retail investors viewed this outcome as professional investors using their power in the US government and financial industry. , to stop the public from continuing the financial destruction of large, well-known trading firms. In addition to the official reason, retail platforms are not designed to handle the flow of transactions associated with events like GameStop’s dominance, which played a factor in why Robinhood and other platforms bowed to pressure to halt all future trading of GameStop stock. . Robinhood argued that the company did not have enough liquidity to cover trades and revenues. Unsurprisingly, GameStop’s share price plummeted, devastating retail investors and highlighting the fact that the investment market is rigged in favor of the rich and powerful, who may have a clear advantage over their peers. Experts say the intervention unnaturally lowered GameStop’s stock price, acting to reverse the effects of community organizing and investment. However, it was the clearinghouses that really forced Robinhood and other trading platforms to capitulate. When shares are bought or sold, the transaction is not settled or completed until 2 business days after the timestamp of the transaction, which many investors are unaware of. During this 2 business day period, due to regulation, brokerage and clearing firms are not allowed to use client capital to finance the use of collateral during these 2 business days, so they are required by law to use the firms’ own capital. Robinhood argued that it did not have the corporate capital necessary to carry out the massive trading volume in GameStop’s stock. Notably, Robinhood has repeatedly denied that it was under pressure from hedge fund managers, financial institutions and the professional financial industry as a whole to stop short-squeezing GameStop stock.

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