Robinhood almost imploded during the Gamestop meme stock chaos

The House Committee on Financial Services released a report late last week that showed a glimpse into the life of a business during the Gamestop stock craze.

The stock trading and investing app was caught off guard by the surge in interest from the first bigmeme stock after retail investors rallied around it.

The saga was both a huge windfall of new users and brand interest and a threat to the company's existence.

As the company teetered on the edge of what its platform could handle, it froze trades around Gamestop. The sudden spike in trades meant that Robinhood was on the hook for more than it had on hand.

FTX says no active talks to buy Robinhood

The House Financial Services Committee Chairwoman called for a deep dive into what happened behind closed doors, as well as a new report on the need for regulatory and legislative reform. A number of hearings, 95,000 pages of documents and 50 interviews are included in the report.

The Committee investigated the matter and found troubling business practices that needed better market regulation. Payment for order flow and Gamification make it profitable for a new generation of trading apps to push retail investors to make as many trades as possible.

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The committee said that the business was troubling because of its preference for aggressive growth. Most financial firms don't have any plans in place to prepare for another risky phase of market volatility, according to a report.

The report says that.

On the morning of January 28, 2021, Robinhood had approximately $696 million in collateral already on deposit with the NSCC, leaving it with a collateral deficit of approximately $3 billion, which it was required to post to satisfy the NSCC’s clearing fund requirement or risk being in violation of the NSCC’s rules and potentially losing the ability to clear trades for their customers altogether.

[President and Chief Operating

Officer for Robinhood’s clearing operation] Swartwout confirmed that this amount came as a surprise to Robinhood and explained to Committee staff that they had anticipated and prepared for the $1.4 billion of collateral deposit requirements that represent “core” charges, but because they did not model for Excess Capital Premium charges, Robinhood therefore did not expect and had not arranged adequate funding for the additional $2.2 billion Excess Capital Premium charge. On the morning of January 28, 2021, Jim Swartwout texted Gretchen Howard at 6:29 a.m. EST, writing “Huge liquidity issue.”