Trade Republic apologizes

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

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

Last week was an instructive one for the stock market: A call was made on the Reddit platform to buy shares of gaming retailer Gamestop to counter the bet by various hedge funds that Gamestop's stock price would fall. As a result, the stock went into a flight of fancy. At some points, it rose 1,000 percent, costing hedge funds as much as $20 billion, according to estimates.

That had consequences for sellers of stocks like the neobroker Trade Republic: as of 5:30 p.m. on Jan. 28, it was no longer possible to buy several stocks affected by the Reddit campaign through the app, but it was possible to sell them. Even before that, Trade Republic changed its trading venue from Lang & Schwarz Exchange to Tradegate Exchange due to congestion. Here, too, there were several thousand orders per minute in the meantime, so the buying option was discontinued as of 5:30 p.m. "We took this decision to ensure operations for our customers. There were concerns that there could have been rapid drops in the prices of stocks such as GameStop or AMC in the wake of particularly high volatility. In that case, technical delays would have resulted in potentially heavy losses." Trade Republic's argument, then, is to protect customers who, according to a self-experiment by Finanz Szene

Overnight, Trade Republic's IT worked to the breaking point and, after several successful tests, was able to fully restart trading at 7:30 a.m. Friday.

The fact that measures had to be taken at all is mainly attributed to the service provider at Lang & Schwarz Exchange, which could not withstand the load. In the future, however, work would be done on the technical infrastructure, and more risk warnings would also appear for customers during trading: "Due to the unique events in the markets, we wanted to clarify what risks there are for customers investing in highly volatile stocks."

In particular, the phrase "because of the associated risks to you" in the initial notice gave the impression that Trade Republic was seeking 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 enough between explanation (technical risks) and education (volatile stock risks)."

It also answered a few rumors surrounding Trade Republic's trading: The start-up had not been admonished by BaFin, nor had it resumed trading at its request; this decision had been "made independently". There would also have been no influence from third parties such as hedge funds and there would be no lending of securities at Trade Republic as a matter of principle. And, "Trade Republic's business model is not comparable to Robinhood's."