Robinhood Markets Inc. raised another $2.4 billion from shareholders, days after investors agreed to pump $1 billion into the online brokerage to help it ride out a trading frenzy in popular stocks including GameStop Inc.
The huge infusion—the $3.4 billion raised since last Thursday is more than the company has raised in total up until this point in the eight years since its launch—gives Robinhood a war chest to cover a surge in collateral requirements stemming from the trading boom, people familiar with the matter said.
It also should allow the company to support the hundreds of thousands of new accounts users opened since Thursday and to remove many of the trading restrictions that angered customers of the popular brokerage, the people said.
The fundraising deal was structured as a note that conveys the option to buy additional shares at a discount later, the people said.
Customers flooded Robinhood and other brokerages with orders to buy and sell a handful of popular stocks last week. GameStop
the stock that kicked off the retail surge, closed Friday at $325. It began the year at under $20. AMC Entertainment Holdings Inc.
the battered movie-theater chain, is up more than 500% in 2021.
The wild price swings prompted the clearinghouse that processes and settles the trades to ask for more cash to cover potential losses on the transactions.
Because of a lag between when investors book new positions in a stock and when their cash is actually exchanged for securities, brokerages such as Robinhood have to maintain deposit accounts at the clearinghouses that help finalize trades. The Depository Trust & Clearing Corp., which operates the main clearinghouse for U.S. stock trades, requires brokerages to post more of their own money in riskier times to insure against losses.
In an interview posted online late Sunday, Robinhood Chief Executive Vlad Tenev said the clearinghouse initially asked for $3 billion to back up the trades—“about an order of magnitude more than what it typically is.” Robinhood restricted buying in more than a dozen stocks and related options on Thursday, which helped lower the amount of collateral it needed to post to $700 million.
The trading restrictions enraged many Robinhood customers, who took it as a sign that Wall Street was closing ranks. The GameStop rally had dealt painful losses to some hedge funds that had bet the retailer’s shares would fall.
Robinhood has since loosened many of the buying limits put in place last week. At one point, the list of restricted stocks had swelled to more than 50. On Monday afternoon, Robinhood had buying limits on eight popular stocks, including GameStop.