Robinhood Bends To Pressure And Permits Short Selling To Replace Put Options On Signature Bank

Robinhood, the popular stock-trading app, is reversing its policy of not allowing short selling in response to outrage from users who own put contracts against Signature Bank.

Signature’s stock stopped trading on Monday after New York regulators closed the bank on Sunday, placing traders who’d bet against the shares using put options set to expire on Friday in a difficult position. As Forbes first reported, brokers were faced with a logistical nightmare that could have resulted in correct bets expiring worthless.

Robinhood users have been venting their anger on Twitter, urging the company to find a solution. Well-known short-seller Marc Cohodes also took up the cause, urging people to call lawyers if their brokers didn’t honor the contracts. Cohodes’ campaign quickly drew the attention of Robinhood CEO Vlad Tenev and another executive, Steve Quirk, who both said earlier in the week that the company was working on a solution.

On Thursday, some Robinhood users were posting an email from the company that showed the remedy the broker had come up with. The letter says Robinhood will pause its policy of not allowing short selling on the platform to ensure that the put options don’t expire worthless due to a technicality.

“If you choose to exercise your put options without enough shares to cover exercise, your account may be short shares of SBNY,” Robinhood emailed to users, according to screenshots shared on Twitter. Robinhood didn’t respond to requests to comment further.

One user named Mike Abramson posted proof, showing that Robinhood made good on its promise. The broker converted his put contract to a short position.

Abramson knew who to thank. He gave a shout out to Cohodes.

The move by Robinhood to reverse its policy is a rare one, but it highlights the difficult position that traders found themselves in due to the trading halt. It remains to be seen whether this will have any lasting impact on the platform’s policies or reputation.

But Robinhood’s affected users should remain vigilant, per the company’s email. The terms of the fix aren’t set in stone.

“Currently, we will not charge your account any fees associated with borrowing shares,” Robinhood wrote. “However, this can change in the future. This short stock position will remain until either trading resumes or the redemption value of the shares is determined. Also, the short stock position may impact your ability to open new positions if you do not hold enough assets to cover short stock position requirements.”