Sen. Elizabeth Warren, D-Mass., probed Robinhood CEO Vladimir Tenev on Tuesday as to why the brokerage firm “abruptly changed the rules” for retail investors by restricting trades and imposing other limits during the frenzy in GameStop and other heavily shorted stocks.
In a letter sent Tuesday, Warren told Tenev that Robinhood abruptly changed the rules for individual investors “with no warning or recourse while hedge funds and other wealthy Wall Street institutions continued to trade.”
Said Warren: “In addition to putting customers’ finances at risk, Robinhood’s actions revealed a new set of questions about its relationship with large hedge funds and other financial institutions, and follows past criticisms of Robinhood’s insufficient investor protections,” Warren wrote.
Robinhood, she said, “has a responsibility to treat its investors honestly and fairly, and provide them with access to the market under a transparent and consistent set of rules. It is deeply troubling that the company may not be doing so.”
Warren asked Tenev to “disclose the circumstances behind Robinhood’s decision to restrict trading, including any influence its hedge fund investors or other financial services partners like [market maker] Citadel with significant stakes in these trades, may have had on Robinhood’s decision making.”
In a blog post on Friday, Robinhood stated that it “limited buying in volatile securities to ensure it complied with deposit regulations,” not because it wanted to stop investors from buying certain stocks.
The amount required by clearinghouses “to cover the settlement period of some securities rose tremendously” during the week of Jan. 25. “How much? To put it in perspective, this week alone, our clearinghouse-mandated deposit requirements related to equities increased ten-fold. And that’s what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.”