Robinhood Caps Maximum Holdings In 36 Stocks To Just One Share

Something bad is taking place at Robinhood.

One day after the company drew down on its bank lines and obtain a $1 billion rescue capital investment, the company found itself in lockdown mode, allowing just a handful of shares to be traded at a time, effectively shutting down in all but name (it couldn’t risk another day of furious public outcry and massive client departures).

However, just before the close, things got downright surreal when in a blog post the broker – which should probably change its name from Robinhood to Suit – made a shocking announcement: going forward, customers will be subject to maximum aggregate limits in 50 securities of which 14 are capped at position limits of just 5 shares, while allowing total holdings in 36 securities to be just one share!

In other words, as of this moment, no client is allowed to one more than 1 share in names like GME, AMC, AG, BBBY, BYND, WKHS and many others. Even boring, low vol names like GM and SBUX are limited to just one share.

This is what the blog post said:

“The table below shows the maximum number of shares and options contracts to which you can increase your positions. Please note that these are aggregate limits for each security and not per-order limits, and include shares and options contracts that you already hold. These limits may be subject to change throughout the day.”

Panicked clients who are wondering if this means that their current holdings which exceed 1 laughable share will be forcefully liquidated can breathe for now: the company said that “outside of our standard margin-related sellouts or options assignment procedures, your positions will not be sold for the sole reason that you are currently over the limit. However, you will not be able to open more positions of each of these securities unless you sell enough of your holdings such that you are below the respective limit.”

In other words, virtually nobody can buy any new securities.

The company also disclosed that no fractional shares can be bought going forward as “fractional shares are currently position closing only for all of the securities listed in the table above. This means you can sell and close your fractional positions, but you can’t open new fractional positions. However, you can still open new whole share positions according to the limits listed above.”

Why is this happening? The most likely reason is that between DTC, clearinghouses and other regulatory entities, Robinhood was found to be in another capital deficiency position – even with the billions raised overnight – and it is being forced to delever.

This likely means that Robinhood is as of this moment, scrambling to obtain even more capital, although we somehow doubt it will be just as easy to “take from the rich” as it was late last night especially since the client exodus is surely accelerating.

It also means that we may have to have another “Lehman Weekend” situation on our hands, only this time it will be a “Robinhood Weekend”, and an urgent acquisition from a strategic buyer may be required to prevent the worst case outcome. We only hope that the billions in funds held in custody for clients is segregated should the company collapse (pinging Jon Corzine here).

In any case, expect a lot of Robinhood related news over the weekend.