2 Million Downloaded the Robinhood App During GameStop Frenzy

Wall Street has always argued that restrictive rules are for losers and thwart natural economic activity. Until, of course, the lack of rules starts hurting hedge funds and private equity firms. JL

Cat Zakrzewski reports in the Washington Post:

2.1 million people downloaded the app during the week of Jan. 25. That’s a 400% increase in downloads from just a week earlier. The recent frenzy around GameStop and stocks of other struggling companies has raised questions about whether Washington has paid enough attention to how the Internet is transforming U.S. investing. The role technology has played in democratizing finance can negatively affect and expose more people to risky financial moves. And as the controversy drives more retail investors to trading apps, the stakes are only growing.

Downloads of Robinhood and other brokerage apps spiked last week amid the GameStop stock craze. 

Robinhood, a Silicon Valley start-up promising to democratize investing, is at the center of the frenzy — and struggling to keep up with a viral surge in demand. New data from SensorTower shows 2.1 million people downloaded the app during the week of Jan. 25. That’s a nearly 400 percent increase in downloads from just a week earlier. 

Robinhood is in crisis mode as it scrambles to address a rise in collateral requirements related to the trading boom. The company has raised $3.4 billion just since Thursday — and the latest infusion of funding is expected to allow the brokerage to lift some of the restrictions it placed on investors that angered the public and sparked a frenzy, as the Wall Street Journal reported. The clearinghouse that processes and settles Robinhood’s trades had asked the company for more cash to cover potential losses on the transactions due to the wild seesawing of stocks such as GameStop.

Robinhood wasn’t the only trading app that saw a big increase in demand, per SensorTower’s data:

—Webull was downloaded 1.2 million times last week, a 751 percent increase week over week. 

—Fidelity’s app was downloaded 668,000 times, a 887 percent week-over-week gain. 

—TD Ameritrade was downloaded 507,000 times, a 576 percent increase. 

Congress is set to more closely scrutinize fintech’s apps role in the stock market chaos. 

The download boom comes as Washington lawmakers and regulators are preparing to examine the role technology has played in democratizing finance — and how it can negatively affect and expose more people to risky financial moves. The scrutiny could have major implications for the future of trading apps in Silicon Valley. 

The recent frenzy around GameStop and stocks of other struggling companies has raised questions about whether Washington has paid enough attention to how the Internet is transforming U.S. investing. And as the controversy drives more retail investors to trading apps, the stakes are only growing. 

The House Financial Services Committee announced that it will host a Feb. 18 hearing called “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.” The committee has not publicly announced the list of witnesses yet, but Politico reports that Robinhood CEO Vlad Tenev is set to testify. 

Lawmakers from both parties are raising concerns about the restrictions that Robinhood placed on trading last week, as The Technology 202 previously reported.

Tenev is on the defensive about the company's moves – from business networks to chats with Elon Musk. 

His recent interviews could preview the public grilling. Tenev expressed regret for how the company handled the abrupt halt in trading of stocks such as Gamestop, AMC and others in an impromptu interview with Musk on the new social app Clubhouse, my colleagues reported. “We knew this was a bad outcome for customers,” Tenev said. “People get really pissed off if they’re holding stock and they want to sell it and can’t.”

Tenev explained Robinhood had received a rare request early Thursday for a $3 billion deposit from the company’s clearing agency, which works to fulfill transactions. That was a major problem for the company, which had only raised about $2 billion in funding at the time. Tenev said it was “an order of magnitude over” the typical request amount and he later called for more transparency over the formulas used by financial institutions to calculate these requirements.