Today is a big day for Robinhood, the popular trading platform. The company, which has found itself under fire in the past few weeks due to the GameStop debacle, has announced that it will begin supporting deposits/withdrawals of cryptocurrencies. In addition to this, the company’s CEO, Vlad Tenev, will be speaking at a Congressional Hearing on the aforementioned GameStop situation.
Robinhood Activating Deposits and Withdrawals
Over the past year, much ado has been made over the entrance of companies into digital assets like PayPal, WealthSimple, Robinhood, and more. While some level of excitement was/is surely warranted, each of these examples were plagued by a major issue in their offerings – closed looped systems.
With regards to trading digital assets, a closed looped system allows for users to buy and sell supported assets. It does not however allow for users to deposit or withdraw said assets. This limitation allows for the platforms to keep a closer eye on who exactly is trading, and reduces the service complexity.
Naturally, as most interested in digital assets maintain the mindset ‘not your keys, not your coin’, the idea of a closed loop system loses its lustre, as investors never actually control their holdings. This is about to change for users of Robinhood though, as the company has announced that it will now support both deposits and withdrawals of digital assets found on its platform.
The move comes at a time where public sentiment surrounding Robinhood has taken a major hit. This move may be somewhat of an ‘olive branch’ to those scorned by its actions in past weeks surrounding the GameStop fiasco.
What should be interesting, is to see if Robinhood’s competitors enact similar changes in the coming weeks/months.
Beyond expanding the functionality of its platform, Robinhood sees its CEO, Vlad Tenev, gearing up for a speech today in a Congressional Hearing. This hearing was put together in an attempt to analyze the events which led to the widely publicized GameStop drama, the actions of those involved, and what can be done to prevent recurrences.
In this speech, it is expected that Tenev will emphasize the need for new regulations which reflect a digital world. In particular, Tenev is expected to discuss a requirement imposed by the SEC for a 2-day settlement period. The company has indicated that it is due to this rule that it halted trading, not due to collusion with the hedge funds affected by the market conditions.
“I want to be clear at the outset: any allegation that Robinhood acted to help hedge funds or other special interests to the detriment of our customers is absolutely false and market-distorting rhetoric. Our customers are our top priority, particularly the millions of small investors who use our platform every day to invest for their future…What we experienced last month was extraordinary, and the trading limits we put in place on GameStop and other stocks were necessary to allow us to continue to meet the clearinghouse deposit requirements that we pay to support customer trading on our platform.”
As the main mission of the SEC is to protect investors, and ensure fair markets, Tenev is hoping that the regulatory body will take a sincere look at settlement times. He highlights the fact that the system as it currently stands, puts the massive wave of new investors using platforms like Robinhood at risk.
“The existing two-day period to settle trades exposes investors and the industry to unnecessary risk and is ripe for change. Every day, clearing brokers like Robinhood Securities have to meet deposit requirements imposed by clearinghouses to support customer trades between the trade date and the date the trades settle. Investors are left waiting for their trades to clear, and the clearing brokers have their proprietary cash locked up, until the settlement is final days after the trade. 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.”
An Existing Solution?
Here at securities.io, we believe in the future of digital securities. The settlement requirements which led to Robinhood halting trading is one of the many reasons why this belief is held. By utilizing digital securities, the need for various intermediaries is eliminated when trading such assets, with trades being settled in real-time.
“Removing the need for a centralized clearinghouse — like the Depositary Trust & Clearing Corporation (DTCC) — which processes nearly $1.7 trillion of securities trades each day — is at the crux of the matter and should be a key part of this discussion among regulators and market structure participants and stakeholders. Through blockchain-enabled security tokens, we are already creating a marketplace that leverages the unique advantages of decentralized blockchains for private markets and this should and can also represent the future for public markets…Fully digitizing public securities to level the playing fields for all investors by eliminating unneeded and entrenched middlemen, should be a key focus right now and is an attainable longer-term goal.”