Graduate School of Business finance professor Anat Admati concurred, saying that “there’s no something out of nothing.” Admati’s work takes a cross-disciplinary approach to advocacy for accountability in the private sector and government. “All the indications are that Robinhood was just meeting its regulatory requirements to make sure their customers’ cash was safe.” Thus, the reasons that the trade of securities was limited were “mundane,” according to Duffie.Īnd the theory that Robinhood was somehow conspiring with other investors in an attempt to stop retail traders from going after other investors? The National Securities Clearing Corporation (NSCC) requires Robinhood to guarantee that its customers’ will be able to pay for their trades, which take two days to be settled. He explained that companies in the financial services industry, such as Robinhood, are expected to comply with several government regulations, including a number of fiduciary responsibilities laid out in Section 15(c)(3) of the Securities Exchange Act of 1934. ’84, professor of finance in the Graduate School of Business (GSB).ĭuffie studies financial markets from the viewpoint of making them more efficient and safe. “In the case of Robinhood, limiting that trading was actually necessary to protect their customers’ money,” said Darrell Duffie Ph.D. 2, the company announced that it had raised $3.4 billion to “continue to invest in record customer growth.” “This is a dynamic, volatile market, and we have and may continue to take action to make sure we meet our requirements as a broker so we can continue to serve our customers for the long term,” Robinhood wrote on its blog. Since then, Robinhood has published messages of clarification on its blog, saying that they shut down trading because they didn’t have enough cash on hand to pay clearinghouses their deposits, not to stifle the day traders. Then, Robinhood shuttered trading, sending prices plummeting and criticism raging.

Last month, a group of Reddit users succeeded in inflating the stock price of GameStop, a video game retailer that is not likely to be profitable until 2023. But with more people staying at home with stimulus checks in hand, day trading has become an increasingly popular pandemic activity. Historically, individual traders have not been able to affect institutions like hedge funds or investment banks. Two weeks ago, individual traders sent video game retailer GameStop’s stock ballooning to a closing price of $347 - a 2,000% increase from that of the previous month - to the chagrin of institutionalized investors who have been betting on the stock price falling in a tactic known as “shorting” the stock. ’08, was justified in limiting user trading of GameStop stock amid soaring prices late last month. Stanford economists say that Robinhood, the trading app founded by Vlad Tenev ’08 and Baiju Bhatt ’07 M.S.

Robinhood app safe