Fee-free online brokerage firm Robin Hood claims to have faced several new class actions filed by clients across the country this week, preventing the company from buying shares in GameStop Inc.
And other hot socks for malicious reasons.
However, legal experts have told MarketWatch that plaintiffs will face a difficult battle for damages.
“The most appropriate fact is the real reason Robin Hood stopped trading and the extent to which all investors were treated equally,” Jill Fisch, a professor of business law at the University of Pennsylvania’s Carry Law School, told MarketWatch. Told.
For example, in a proceeding filed by Brendon Nelson, Massachusetts, in a federal court in New York, “Robin Hood slows growth and benefits GME’s large individuals and institutions that are not Robin Hood’s customers. Withdrawing securities such as from the platform. Institutional or potential investors. ”
In a second proceeding filed by Josh Gossett and James LePlant in federal court in California on Thursday night, he claimed: Economic interests and interests of other market participants. Many had a direct disadvantage to Robin Hood’s customers. “
If this is really true, it is “problematic” and will increase the chances of a successful proceeding, Mr Fish said.
Robin Hood co-founder Vladimir Tenev said on Twitter that regulation is the real reason for stopping the sale of GameStop and other shares.
Dan Orly, a law professor and expert in financial regulation and market structures, said this explanation given the extreme volatility of the stocks in question and the one-way direction of Robin Hood’s users betting on those stocks. He told MarketWatch that it was plausible.
The Depository Trust and Clearing Company and its subsidiaries act as a single clearinghouse and depository in which all public equity transactions are conducted in the United States. It is an institution that actually exchanges stocks for cash, and securities are deposited for storage in the same way as transactions. You can buy and sell stocks instantly, even if the actual settlement takes more than 24 hours.
“It is relatively unlikely that a broker will fail to meet its obligations to DTCC at this time, and if there is a balanced book of buying and selling certain shares, the exposure of DTCC in case of failure is relatively small, and in a normal course, The collateral requirements reflect that, “he said.
“But this wasn’t a regular course,” he added. “Robin Hood had a huge open position with no one-way buys and sells of very volatile stocks,” so Robin Hood’s collateral requirements soared.
The report shows Robin Hood quickly raised $ 1 billion from existing investors to meet these requirements, which eased some restrictions on the sale of GameStop shares and more.
This does not mean that Robin Hood, GameStop stock traders, or financial regulators are out of the woods. There are extensive reports Robin Hood has liquidated its holdings of hot stock without the user’s permission.
The company states that this is part of our “standard margin-related sold-out or option allocation procedure”, but Robin Hood users are automatically enrolled in their margin account and effectively from Robin Hood. Not to mention the fact that you can borrow and execute transactions. And it gives the company freedom to liquidate their holdings without permission.
“I don’t know why regulators allowed this,” Awrey said. “This is just as unpleasant for Robin Hood’s regulators as it is for Robin Hood,” he added, adding that financial industry regulators, the Federal Reserve, or the Securities and Exchange Commission have restricted “very rare” practices. Insisted that there was a possibility. Therefore, it saved many customers from the confusion and disillusionment caused by the automatic liquidation of their holdings.
Robin Hood did not respond to requests for comment.
Ultimately, Fish of the University of Pennsylvania said these issues were likely to be addressed by regulatory measures rather than private proceedings. Easily get involved in a private arbitration process..
“In the next few days, we may have some regulatory response,” she said. “Regulatory interventions can be on the side of social media and this type of transaction, but we can also target Robin Hood and other businesses, and how they respond.”
The proceedings conspire against Robin Hood’s GameStop move, but experts doubt the story
http://www.marketwatch.com/news/story.asp?guid=%7B21005575-02D4-D4B5-4572-D24458408F85%7D&siteid=rss&rss=1 The proceedings conspire against Robin Hood’s GameStop move, but experts doubt the story