A reputation can take 20 years to build — and 5 minutes to ruin. That quote from legendary investor Warren Buffett would probably strike a nerve at the headquarters of trading platform Robinhood at the moment, as users continue to complain about the app briefly restricting buying on a few key shares — including GameStop. In recent days those complaints have been flooding the App Stores, with thousands of negative reviews posted in the last few days alone.
Robinhood's reputation may not be 20 years-old, but since its founding back in 2013 its mission statement: "to democratize finance for all [with a belief] that everyone should have access to the financial markets" has certainly lost some credibility after restricting buying only on certain stocks.
Robinhood's CEO, Vlad Tenev, has reported that its equities clearing house called him at 3:30 am last week, asking Robinhood to put up $3bn of capital. That forced Robinhood to do its second quick whip round from investors, raising another $2.4bn from investors on Monday — on top of the $1bn they had raised the previous week.
**T+2?**
Robinhood has since relaxed some of the restrictions on certain stocks — now allowing retail investors to buy up to 100 GameStop shares, up from a previous limit of 20. The CEO has also written a blog post outlining why he believes the real culprit of this entire saga is the US two-day trade settlement period, known as T+2, which means that brokers like Robinhood have to meet deposit requirements, tying up their capital on behalf of their investors, until the trades actually settle two days later.
Whether Robinhood could have managed things differently is hard to know, but for Robinhood's brand it almost doesn't matter — the damage appears to be done.
