Trade Republic apologizes

This morning, customers of the Trade Republic app received a message. It contained a clear apology and an explanation of the decision-making process.

Last Thursday, customers of the neobroker Trade Republic were informed that they could no longer trade shares in six companies. There was an outcry on social media and BaFin received numerous complaints. Now the company has apologized: "We didn't do a good job here," Trade Republic wrote in a message to its customers on Wednesday morning. And admits that it did not explain its actions well enough.

Last week was an instructive one for the stock market: A call was made on the platform Reddit to buy shares in the games retailer Gamestop to counter the bet by various hedge funds that Gamestop's share price would fall. As a result, the share price soared. At times it rose by 1,000 percent and, according to estimates, cost the hedge funds up to 20 billion dollars.

This had consequences for providers of shares such as the neobroker Trade Republic: from 5:30 p.m. on January 28, it was no longer possible to buy several shares affected by the Reddit campaign via the app, but it was possible to sell them. Trade Republic had already changed its trading venue from Lang & Schwarz Exchange to Tradegate Exchange due to congestion. Here, too, several thousand orders per minute were recorded in the meantime, so the purchase option was discontinued from 5:30 pm: "We made this decision to ensure operations for our customers. There were concerns that the particularly high volatility could have led to a rapid collapse in the prices of titles such as GameStop or AMC. In this case, technical delays could have led to heavy losses." Trade Republic thus argues with the protection of customers who, following a self-experiment by Finance Scene had to wait up to two hours for identification and thus the execution of their trade.

Overnight, Trade Republic's IT department worked at the limits of its capacity and, after several successful tests, was able to restart trading in full on Friday at 7:30 am.

The fact that the measures had to be taken at all is primarily attributed to the service provider at the Lang & Schwarz Exchange, which was unable to cope with the load. In future, however, work will be carried out on the technical infrastructure and more risk warnings will appear for customers during trading: "Due to the one-off events on the markets, we wanted to clarify the risks for customers who invest in highly volatile shares."

In particular, the wording "due to the associated risks for you" in the initial communication gave the impression that Trade Republic wanted to influence the stock market by imposing targeted restrictions. Now there is a clear apology: "The first communication to our customers was not good. We didn't separate explanation (technical risks) and clarification (risks associated with volatile stocks) enough."

A few rumors surrounding Trade Republic's trading were also answered: The start-up had not been admonished by BaFin, nor had it resumed trading at its request; this decision had been "made independently". There had also been no influence from third parties such as hedge funds and there was no lending of securities at Trade Republic. And: "Trade Republic's business model cannot be compared with that of Robinhood."