(1) Update on the Robinhood situation: looks like the decision to halt trading was one of survival, not fraud.

Robinhood raised $1 billion immediately this morning/late last night. It appears they had a liquidity issue.

(2) My guess is as follows - when you move money into Robinhood they allow up to $1k of instant trading. It takes 3-5 days for the bank to actually clear the payment and move the money into the account.

What Robinhood does is front you $1k. Now if you apply for Robinhood gold the amount rises depending on your deposit. Up to $50k.

The banks require Robinhood a certain % of money to be kept for those purposes. The % fluctuates with volatility in the market or certain securities

(4) With increased demand, many new people downloaded Robinhood to invest. Many were also investing in 10-15 specific stocks. That level of of concentration and volatility likely moved the % up. As most trades on Robinhood were in those 10-15 extremely volatile stocks.

(5) If you are a bank/SEC and you know Robinhood is fronting people millions to buy incredibly overvalued stocks like GameStop it presents more risk. The banks/SEC will require Robinhood hold a higher amount in cash due to higher risks.

(6) Imagine if somebody deposited their $1k rent hoping to make some quick profit and cash out. Then GameStop drops and they don’t have the cash RH fronted?

(7) New investors drained their cash and SEC moved up the % on an instant. This forced Robinhood to decide what’s worse

1) Cost of class action lawsuit
2) Cost of fines because of not meeting % margin requirements.

We know Robinhood’s decision so we know what was likely worse.