By Sumeet Chatterjee, Anirban Sen and David French
(Reuters) - Robinhood, the U.S. online broker that has emerged as a gateway for amateur traders challenging Wall Street hedge funds, has held talks with banks about raising $1 billion in debt so it can continue to fulfill orders for heavily shorted stocks, according to people familiar with the matter.
The capital raised would be separate from the $3.4 billion in financing that Robinhood announced on Monday it had secured from its investors since Jan. 29. It reflects the financial pressure that last week's Reddit-fueled frenzy in shares such as GameStop Corp placed on the company, prompting it to restrict some trades.
Robinhood needs the money to backstop trades that its customers place, because its clearinghouse has asked for more collateral due to heightened volatility. Robinhood CEO Vlad Tenev said on Sunday that the trading app decided to place curbs on some transactions because the clearinghouse had asked for $3 billion in collateral.
Robinhood started negotiations with banks about expanding its lines of credit or arranging a new one after it drained its revolving debt facility during last week's frenetic trading, one of the sources said. It is not clear how much debt Robinhood will be able to secure.
The sources requested anonymity because the matter is confidential. Robinhood declined to comment.
Robinhood, which has become popular with young investors for its easy-to-use interface, is at the heart of a mania that kicked off last week following calls by Reddit thread WallStreetBets to trade certain stocks that were being heavily shorted by hedge funds.
The online brokerage faced criticism from some of its users for placing restrictions on transactions. Its woes have raised doubt over whether its plans to launch an initial public offering by April will stay on track.
The Menlo Park, California-based company was founded in 2013 by Baiju Bhatt and Tenev, aiming to democratize finance. Its platform allows users to make unlimited commission-free trades in stocks, exchange-traded funds, options and cryptocurrencies.
Robinhood said on Monday that its latest equity financing was led by Ribbit Capital, with participation from existing investors including ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures and NEA.
(Reporting by Sumeet Chatterjee in Hong Kong, Anirban Sen in Bengaluru and David French in New York; Editing by Lisa Shumaker)