Robinhood

pptx

School

University of Texas, Dallas *

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Course

100

Subject

Finance

Date

Feb 20, 2024

Type

pptx

Pages

12

Uploaded by BaronWaterKangaroo174

Report
ROBINHOOD The GME Scandal
Introduction/Overview The actions of Robinhood during the surge in the stock of GameStop (GME). Key individuals, issues, and facts Company Background Situation/Timeline Implications Suggested Actions Consequences Conclusion
Founded in 2013 (co-founders Vlad Tenev and Baiju Bhatt) Mission: "Provide everyone with access to the financial markets, not just the wealthy" Mission Statement: "To democratize finance for all" After 75 investor pitches, company found a few willing venture capitalists. Now it has over 2 million users and is valued at about $1.3 billion. (Business Insider) Rapid growth driven by friendly interface and accessible financial services Increased competition among brokerages and influenced changes in the way financial services are delivered to retail investors Company Background Mazarakis, A. (n.d.). The founders of Robinhood, a no-fee stock- trading app, were initially rejected by 75 venture capitalists - now their startup is worth $1.3 billion . Business Insider. https://www.businessinsider.com/robinhood-app-vlad-tenev- founder-free-stock-trading-valuation-2017-7
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Situation Unprecedented surge in GME stock in January 2021 Collective effort driven from retail investors & online forums such as Reddit's "WallStreetBets" Robinhood imposed restrictions on trading resulting in public outcry & market manipulation accusations Ultimately led to 3 major problems
Timeline Late 2020 Retail investors on Reddit's "WallStreetBets" begin to target GameStop stock, recognizing that it had been heavily shorted by institutional investors. Jan. 2021 GameStop's stock price experiences a meteoric rise, driven by coordinated buying from retail investors 27 Jan. 2021 Several online brokerage platforms, including Robinhood, restrict trading on GameStop and other volatile stocks, citing the need to manage risk. 28 Jan. 2021 Robinhood's CEO, Vlad Tenev participates in multiple media interviews to address the trading restrictions and defends the decision 29 Jan. 2021 The trade freeze and its consequences continue to be a topic of public debate, Congres sional hearings, and legal actions.
Lack of Transparency Refers to openness and clarity in communication Crucial for maintaining trust Left users questioning motives Lacked detailed explanation for trading restrictions Mitigate confusion Build confident user base Prevent spread of misinformation
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Stakeholder Trust Leadership issue Appeared to favor institutional interest over retail investors Eroded trust Raised questions over platform's commitment to its users Reinforce company's commitment to its core principles
Implications Robinhood's reputation jeopardized by perceived favoritism towards institutional interests User attrition/decline in new user acquisition Sparked societal conversations and questions of traditional power structures Trade restrictions had broad financial consequences & affected stakeholders/investors Prompted reassessment of risk management strategies
Suggested Actions Communicate Consistency builds credibility, presents united and principled front Adaptability to Market Dynamics assess/update risk management protocols, forward-thinking approach User-Centric Decision-Making consider impact on users, align actions with mission and expectations
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Potential Consequences Regulatory Challenges balance between meeting requirements and maintaining user experience User Perception perceptions of favoritism/mistrust, acknowledge and act on sentiments Market Dynamics anticipate consequences, preventative actions, ensure stability/integrity
Conclusion Robinhood-GME case serves as a critical inflection point: reassess communication strategies and business models transparency, adaptability, and user-centricity navigating uncertainties, preserving trust reshaping financial markets for the benefit of all stakeholders shaping a more inclusive and resilient financial ecosystem
Questions and Discussion Did Robinhood contradict its mission by enacting the GME stock freeze? How could have Robinhood communicated its decision more effectively to investors? How can Robinhood better secure its investors’ interests in the future?
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