Robinhood CEO explains to Elon Musk why his platform restricted trading last week

Robinhood co-founder and co-CEO Vlad Tenev speaks onstage at some level of the TechCrunch Disrupt Sleek York match on Would possibly well possibly perhaps perhaps 10, 2016.

Noam Galai | Getty Pictures for TechCrunch

The co-founder of Robinhood took to invitation-most efficient audio chat app Clubhouse on Sunday to defend the funding platform’s arrangement to restrict buying and selling in GameStop and other unsafe stocks.

GameStop shares have climbed higher than 1,500% for the reason that delivery of the year, fueled in no small phase by a wave of retail investors impressed by the Reddit board WallStreetBets. Such investors piled into GameStop and other closely-shorted stocks, resulting in mammoth losses for some hedge funds.

Robinhood moved to restrict buying and selling in a series of stocks, including GameStop and AMC Leisure, on Thursday. Vlad Tenev, co-CEO at Robinhood, acknowledged on the time that the option became once geared towards protecting the company and its prospects.

In the session on Clubhouse, Tesla CEO Elon Musk pressed Tenev on why the platform, a pioneer of price-free buying and selling, decided to restrict buying and selling final week. The gain brokerage company restricted buying and selling in 13 equities, allowing purchasers to promote positions but now not open contemporary ones in obvious securities, hideous fury from users.

“We had no option on this case,” Tenev acknowledged. “We needed to conform to our regulatory capital requirements.”

Tenev acknowledged Robinhood’s operations team obtained a demand at 3: 30 a.m. Pacific Time on Thursday from the Nationwide Securities Clearing Corporation. Robinhood and other clearing brokers are required to meet obvious deposit requirements from clearinghouses admire the NSCC everyday. The quantity required is consistent with components much like volatility and concentration in obvious securities, Tenev acknowledged.

Robinhood got a demand for a security deposit of $3 billion from the NSCC to encourage up trades, “an repeat of magnitude higher than what it customarily is,” Tenev acknowledged. The firm raised a further $1 billion in emergency capital from existing investors to be ready to shore up its balance sheet and permit it to ease the buying and selling curbs.

“Did one thing possibly shady dash down here?” Musk — who has shown strengthen for WallStreetBets on Twitter — requested Tenev.

“I wouldn’t impute shadiness to it or the relaxation admire that,” Tenev replied. “The NSCC became once cheap subsequent to this.”

Robinhood and the NSCC later agreed to in the reduction of the $3 billion quantity precise down to round $1.4 billion, but Tenev acknowledged his company became once tranquil compelled to design end movement to restrict trades.

Tenev’s explanation of the impart echoed a weblog post from Robinhood, whereby the company explained it save temporary buying for restrictions on some securities because of a tenfold develop in clearinghouse deposit requirements.

Robinhood will proceed to restrict buying and selling on Monday briefly-squeeze names admire GameStop. Customers can most efficient purchase one share of GameStop’s stock and five alternatives contracts. Nonetheless, the millennial-favored stock buying and selling app did in the reduction of down its list of restricted stocks from as many as 50 to eight.

Asked by Musk whether or now not there would be any extra limits on buying and selling in future, Tenev acknowledged: “I ponder there may perhaps be frequently going to be some theoretical restrict. We must now not attempting to assemble infinite capital.”

Musk also quizzed Tenev on whether or now not Castle Securities — the greatest market maker in alternatives in the U.S. – had pushed the company to impose buying and selling limits. Robinhood gains a significant chunk of its revenues from routing orders to market makers admire Castle and Virtu. Castle also helped infuse end to $3 billion into Melvin Capital, a hedge fund that guess against stocks admire GameStop.

“To what level are you beholden to Castle?” Musk requested, to which Tenev replied: “There is a rumor that Castle or other market makers compelled us into doing this and that is the reason precise spurious.”

“This became once a clearinghouse option and it became once precise consistent with the capital requirements,” Tenev added. “From our standpoint, Castle and other market makers weren’t fascinated about that.”

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