- Robinhood’s “infinite leverage” glitch has placed the company back under regulator scrutiny, which could result in a fine, Bloomberg reported Thursday.
- One person on the WallStreetBets sub-Reddit – the forum where much of the discussion around the glitch has taken place – described the bug as an “infinite money cheat code.”
- The Securities and Exchange Commission and the Financial Industry Regulatory Authority are the two agencies most likely to investigate the matter. Both have the authority to levy fines for financially-irresponsible behaviour.
- The glitch that allowed traders to borrow limitless amounts of capital was exploited by about 20 users and led to losses of less than $US100,000 for Robinhood, a source familiar with the matter told Bloomberg.
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Robinhood’s “infinite leverage” glitch has placed the company back under the eye of brokerage regulators, Bloomberg reported Thursday.
The bug allowed traders to borrow seemingly-limitless amounts of capital without posting enough cash as collateral. The glitch was exploited by about 20 Robinhood Gold users and led to losses of less than $US100,000 for the company, a source familiar with the matter told Bloomberg.
The Securities and Exchange Commission and the Financial Industry Regulatory Authority are the two agencies most likely to investigate the matter. They typically look into brokerage outages and irregularities, and are authorised to levy fines as a penalty for financially-irresponsible actions.
Robinhood said on Thursday it banned the participating accounts and made a “permanent update” to prevent the trading pattern. Some Reddit users debated the statement, commenting Thursday afternoon that the core flaws still exist in some capacity.
The trading platform is also seeking a bank licence from the government, and the misstep could curtail efforts to expand in the highly-regulated finance sector.
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The gaffe isn’t Robinhood’s first. The trading platform unveiled a cash management product last December that would pay 3% interest on deposits, and advertised the service as insured by the Securities Investor Protection Corp. The Washington nonprofit – which insures investors against losses should a trading platform go under – quickly noted that it never backed the service.
Robinhood subsequently pulled the product after increased public and regulatory scrutiny. An updated cash management service was unveiled October 8, but touted a 1.8% yield on cash deposits, nearly half the rate it previously boasted.
Members of the WallStreetBets subreddit discovered the bug in late October, with one user deeming it an “infinite money cheat code.” User ControlTheNarrative publicized the trade after posting that he turned a $US2,000 deposit into a $US50,000 position.
Other traders quickly followed up, boasting increasingly large sums of borrowed cash. One forum member even made a hall-of-fame list for those with the biggest stakes.
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