Yesterday there was outrage over the Robinhood stock trading app temporarily halting purchases of GameStop (GME) and a few other stocks. The GME price went from $18 two weeks ago to $330 today following activity on the WallStreetBets message board on Reddit.
The reason why Robinhood and other brokers stopped allowing trades wasn’t some conspiracy collusion with hedge funds. Robinhood explained that the driver was “SEC net capital obligations and clearinghouse deposits.” Stock trades take two days to settle, which is the reason behind these rules. So a spike in purchase volume requires Robinhood to put up more capital, which it raised yesterday. Also, while the retail trader might make instant payments, Robinhood doesn’t receive the money immediately.
If payments were in digital currency via a blockchain in exchange for tokenized stocks, there could be instant settlement or delivery versus payment, which could make this issue disappear.
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