It’s time to consider real-time settlement in U.S. equities trading, Robinhood Chief Executive Officer Vlad Tenev said, after the online brokerage suffered immense financial strain from a retail trading frenzy that rocked Wall Street last week.
“There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time. Doing so would greatly mitigate the risk that such processing poses,” Tenev, who is also a co-founder of Robinhood, said in a blog post bit.ly/3aw3yEi. The securities industry currently follows a two-day settlement system.
Retail investors, egged on by Reddit thread WallStreetBets, have sent shares of heavily shorted companies such as GameStop Corp and AMC Entertainment through the roof, leading to what is called as a short squeeze that has forced a handful of brokerages to book heavy losses.
Robinhood, which has been at the heart of the historic trading frenzy, drew investor ire after it was forced to curb trading in certain hot stocks due to a 10-fold rise in deposit requirements at its clearinghouse.
“The clearinghouse deposit requirements are designed to mitigate risk, but last week’s wild market activity showed that these requirements, coupled with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks,” Tenev said.
The brokerage was forced to raise $1 billion in emergency funds from investors last week to meet its financial obligations. The company also said on Monday that it had raised an additional 2.4 billion.
Sheila Bair, former head of the Federal Deposit Insurance Corp, took to Twitter on Monday to comment on the two-day trade settlement period.
“Kind of surprising that with all of the anger and recriminations being hurled at Robinhood, hedge funds, short sellers, retail traders, SEC, etc., not much ire at a central culprit-our antiquated payments infrastructure,” she said.