Robinhood traders cry foul over SVB short bets, broker responds

By Gerelyn Terzo on Friday 17 March 2023

Savings and Investment

COO Gretchen Howard is retiring at year-end.

Robinhood traders cry foul over SVB short bets, broker responds
Image source: Unsplash.

Online broker Robinhood has found itself in the middle of the Silicon Valley Bank debacle. The app was under fire from users who say their short bets on the beleaguered Silicon Valley Bank and Signature Bank weren't being honoured. But according to reports, Robinhood is finally doing right by traders. 

Savvy traders had purchased put options on SVB and Signature Bank before the banks collapsed. These put options are bets that the stock price will fall, giving traders the opportunity to sell shares above the market price and pocket the difference. However, when the market panic set in, and the stock prices sank, users say that they were blocked from exercising their put options on the banks, preventing them from earning the profits they were entitled to.

Disgruntled app users took to Twitter to document their experiences, with one sharing that he became “stuck in an indefinite short position.” Others suggested that this injustice wasn’t only happening on Robinhood and that it had spilled over to other brokers too, including Fidelity Investments. 

One trader stated that “everyone is taking advantage of their customers here.” This trader was apparently stuck in a catch-22 in which there was a 300 per cent margin requirement attached that he couldn’t close and yet couldn’t profit from the trade until he closed it. Traders were at risk of losing their puts at expiry on 17 March, at which time the contracts would be worth zilch. 

Meanwhile, shares of the banks are no longer trading. Robinhood CEO Vlad Tenev responded to critics, saying in a tweet that they are “working to resolve this ASAP” and to “stay tuned.” The Financial Times has since reported that Robinhood decided to break its own rule and extend the expiry dates on these positions past the March 17 expiry date.  

It’s not too far in the rearview mirror that Robinhood users were jilted for betting big on GameStop. During the meme-stock craze, Robinhood was accused of market manipulation after it halted trading in stocks like GameStop when demand became too hot for the broker to handle. 

Meanwhile, Robinhood is also experiencing an executive shakeup. The company’s COO, Gretchen Howard, announced she will retire at year-end. 

Howard will take on the role of special adviser starting next month. Before joining Robinhood, she was with CapitalG, the VC arm of Google's parent company Alphabet. She’s also a Fidelity Investments alum. Separately, PayPal has already lost two of its executives this year, with CEO Dan Schulman leaving at year-end and CFO Blake Jorgensen resigning after only a few months on the job.

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