Robinhood tapped credit as app failed
In the throes of frantic market uncertainty, traders using Robinhood Markets Inc. faced the ultimate frustration: Their accounts kept malfunctioning. Behind the scenes, the online brokerage was already bracing for financial strains.
Robinhood drew its entire $200-million credit facility from Barclays, Citigroup Inc. and JPMorgan Chase & Co., according to people familiar with the matter. It made the move just as fears of the coronavirus set off more than two weeks of violent market swings and heavy volume, during which Robinhood’s trading platform suffered three significant outages.
“Our capital position remains strong,” the Menlo Park, Calif., firm said in an emailed statement, and the decision to borrow predated and was entirely unrelated to the outages. “We determined it was prudent to draw on our credit line during the week of Feb. 24 in light of market volatility. That capital was returned in full last week.”
After Bloomberg’s initial report on the drawdown and repayment, a spokesperson for the closely held company disclosed it has other facilities too. “Similar to most broker dealers we have multiple revolving credit lines,” a spokesperson said in a statement. “We have additional larger credit lines that remained fully unused last week.” Robinhood said it wasn’t unusual for companies to take precautionary measures during such market conditions.
“Companies don’t tap their credit line unless they need to,” said David Ritter, an analyst at Bloomberg Intelligence, who spoke generally about the issue without commenting directly on Robinhood. When companies do, it’s “perhaps not a good signal with regard to their cash burn, which could make creditors nervous.”
In the days since it tapped the line of credit, Robinhood’s platform has repeatedly gone dark for more than an hour at a time, including an outage March 2 that spanned an entire U.S. trading session, in which the Standard & Poor’s 500 index surged 4.6%.
Robinhood said last week that a confluence of factors — record account sign-ups along with highly volatile market conditions — led to unprecedented stress on the firm’s infrastructure.
That heavy load caused the so-called domain name system to fail. The system is essentially the phone book that computers use to turn a domain name into an IP address, and it’s how users access websites.
On Monday, Robinhood faced a fresh breakdown as U.S. stocks plunged. Stocks tumbled so hard they set off a marketwide trading halt minutes after the opening.
“We know this interruption was frustrating for our customers — especially after last week and on a day that trading was halted,” the company said in the statement. “We’re working hard to improve our service during these historic and volatile market conditions.”
Robinhood, founded in 2013, pioneered commissionfree trading, a move that’s since been copied by larger online brokers including Charles Schwab Corp.