Robinhood cites cause of its three outages
Robinhood has experienced its third crash in two weeks. During a particularly turbulent time in the stock market, we look at the possible causes.
Robinhood, one of the most disruptive financial services companies in the fintech space today, has experienced its third outage across its app over the last two weeks. These crashes coincide with particularly challenging days of trading on Wall Street, including the biggest single-day point drop in Dow history. The outages have been met with high volumes of concern from users, who have invested over US$900mn into the US$7bn company.
Co-CEOs and Co-founders, Baiju Bhatt and Vladimir Tenev, have issued a statement, acknowledging that these outages are “not acceptable”.
The crashes have been attributed to “stress on [Robinhood’s] infrastructure - which struggled with unprecedented load. That in turn led to a “thundering herd” effect - triggering a failure of our DNS system.” The founders have also suggested that the crash is largely down to the dramatic and historic shifts in the US stock market over the last four weeks.
“Our team is continuing to work to improve the resilience of our infrastructure to meet the heightened load we have been experiencing,” the statement said. “We’re simultaneously working to reduce the interdependencies in our overall infrastructure. We’re also investing in additional redundancies in our infrastructure.”
After the second outage, Robinhood assured its users that Robin Gold premium customers would be compensated.
The volatile shifts in the market can largely be attributed to the fears and supply chain impacts resultant of the Corvid-19 outbreak, which was officially labelled as a pandemic yesterday morning by the WHO. The stock markets are continuing to experience heavy loss days, and there are global concerns that the virus will fuel a recession.
Though Robinhood’s system is fully operational again, the oscillations of the US stock market is causing a number of users to question if this is the end of the outages for the brokerage app.
What is Robinhood?
The company was established in 2013 by Baiju Bhatt and Vladimir Tenev, pioneering commission-free investing by building its own technology from scratch. Reinforcing the message behind the business, Tenev has been famously referenced as noting that executing a trade costs brokerages fractions of a penny, but that they then typically charge as much at $10 per trade; that's before you include the required $500 to $5,000 account minimums.
Did you know? Robinhood is due to launch in the UK this year. Though it is not known if the recent challenges faced by the investment broker will delay the launch, UK users can sign up for early access.
For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.
Robinhood faces $35mn fine from New York DFS
The company’s crypto division was issued with a wrist slap in 2020, following the red flagging of several “matters requiring attention”. Robinhood revealed it had reached a settlement with the New York State Department of Financial Services regarding the issues, which related to “alleged violations” of cybersecurity and anti-money laundering rules.
The news follows on from the announcement earlier this week that the trading platform favoured by armchair investors, which almost broke Wall Street earlier this year, has an expected valuation of $35bn following its IPO.
Critics of the platform say Robinhood encourages “risky behaviour” among inexperienced (armchair) investors. The app has also been criticised for not informing customers that much of its profits are generated by routing their trades to Wall Street firms taking the other side, or so-called "payment for order flow."
Robinhood said last month they expected the DFS fine to be at the $15mn mark, adding it would be “the bottom of the range for our probable loss in this matter”. The $35mn penalty is on top of the record $70mn Robinhood incurred from US financial regulator FINRA in June, for “lax vetting and outages.”
However, the settlement indicates the company’s IPO will go ahead as planned, despite initial concerns the investigation could see the float delayed until later this year.
Robinhood floats imminent
Despite the regulatory hiccups, Robinhood priced its IPO between US$38-US$42 per share, giving the platform the US$35bn valuation and analysts predict the firm’s debut on the Nasdaq could occur as early as next week.
Robinhood democratising investment
Launched in 2013 by Tenev and Bhatt, who were Stanford University roommates, Robinhood’s founders will retain most of the voting rights after the IPO. Bhatt reportedly holds 39% of the voting power of outstanding stock, while Tenev holds 26.2%.
The online brokerage, which came under fire for its handling of the GameStop trading debacle, which saw the platform limit stocks to investors, states its mission is to “democratise” investing and is one of the most highly anticipated IPOs of the year.
Robinhood was valued at $11.7bn in autumn 2020 following a private equity funding drive. The new valuation will mean represent a three-fold increase in the company’s market value in less than 12 months.