Trading app goes down costing its customers big bucks
Robinhood account holders could not take advantage of the record rally on Monday
On Tuesday, a notice on Robinhood’s website alerted clients that “We are experiencing a system-wide outage.” The problems started to occur on Monday and lasted the entire day. Robinhood account holders were unable to take advantage of the largest single-day point gain in the history of the Dow Jones Industrial Average by exiting existing positions or by riding the rally for a day trade. And then yesterday, the market opened sharply higher and continued to rally as the U.S. Federal Reserve Board cut interest rates by 50 points. By the end of the day, the market had given up all of its gains and was sharply in the red again.
Even before the outage extended into a second day, a Robinhood spokesman said, “We realize we let our customers down, and we’re committed to improving their experience.” The spokesman also explained that the outage was caused by a problem with “infrastructure that allows our systems to communicate with each other.” That prevented customers from using the Robinhood app, website, and help center.
“When it comes to your money, we know how important it is for you to have answers. The outages you have experienced over the last two days are not acceptable and we want to share an update on the current situation. Our team has spent the last two days evaluating and addressing this issue. We worked as quickly as possible to restore service, but it took us a while. Too long. We now understand the cause of the outage was stress on our infrastructure—which struggled with unprecedented load. That in turn led to a “thundering herd” effect—triggering a failure of our DNS system.”-Robinhood
Since Robinhood is a broker-dealer, it is required by regulatory agencies including the Securities and Exchange Commission (SEC) to have a backup plan to cover situations when account holders cannot make changes to their holdings. A spokesman with the Financial Industry Regulatory Authority (FIRA) said that it has been in touch with Robinhood and is closely monitoring the situation.
The firm’s 44-page customer agreement states that it will not be responsible for “temporary interruptions in service due to maintenance, website or app changes, or failures,” and isn’t liable for interruptions that occur beyond the company’s control. Robinhood does point out that it doesn’t guarantee that its trading platform will be “error free every minute of the day.” However, it will discuss compensation with its account holders on a case by case basis. Already, a new Twitter account titled Robinhood class action (@RobinhoodClass) has been created. However, it would appear that account holders might be out of luck. James Angel, associate professor at Georgetown’s McDonough School of Business, believes that for Robinhood clients, “it’s most likely tough luck. This won’t stop the class-action lawyers from launching nuisance lawsuits, however.”