The CEO of Spacex and Tesla, Elon Musk, has been trying to find out what happened to the popular trading app Robinhood when he prevented people from buying important stocks, such as Gamestop. The shares of these shares became popular due to the Wallstreetbets movement.
Elon Musk says people want Robinhood’s truth
During an interview on The Good Time Show via the Clubhouse app on Sunday night, Elon Musk questioned the CEO of trading app Robinhood, Vlad Tenev, about the company’s decision to restrict important stocks last week, including Gamestop. On Friday, Robinhood also restricted crypto trading, citing “extraordinary market conditions”.
“What happened last week? Why can’t people buy Gamestop shares? People demand an answer and want to know the details and the truth, ”said Musk.
Tenev started by explaining the structure of his company. “Robinhood is, in fact, some companies”, he described. Robinhood Financial processes trades, Robinhood Securities clears and settles trades and Robinhood Crypto deals with cryptographic trades.
The CEO of Robinhood explained that last Wednesday, his platform experienced an “unprecedented volume”, because “many of these so-called memes were turning on social networks and people were joining Robinhood” to buy these papers. Consequently, the company “received a file” from the National Securities Clearing Corporation (NSCC) on Thursday morning, around 3:30 am PST. She asked Robinhood to “put money in the NSCC based on a number of factors”, including the volatility of certain securities. Tenev clarified that “this is the stock business, so it is based on stock trading and not on options trading or anything else”, elaborating:
They gave us a file with a deposit and the request was about $ 3 billion, which is an order of magnitude more than it normally is.
Musk interrupted Tenev, asking, “Why is this so loud? It seems that this is an unprecedented increase in the demand for capital. What formula did they use to calculate this? “
Tenev replied, “We don’t have all the details. It’s a little opaque formula, but there’s a component called its VAR, which is the value at risk, and it’s based on some very quantitative things… and there’s a special component that is discretionary, so that kind of action as a multiplier. ”Tenev also noted that, up to that point, his company“ raised a little about two billion dollars in total venture capital ”, so the order was“ a large number ”.
Tesla’s CEO interrupted again, asking, “What everyone wants to know is if something maybe dark happened here? It seems strange that you receive a sudden demand of $ 10 billion in the morning … suddenly, out of nowhere. ”Tenev corrected Musk quickly, saying the figure was $ 3 billion. Robinhood’s CEO then emphasized:
I wasn’t going to challenge obscurity to that or anything, and in fact the NSCC was reasonable after that. They worked with us to really reduce it. It was an unprecedented activity.
Musk asked Tenev abruptly, “Is anyone holding you hostage now?” Tenev chuckled and replied, “No, no, I’m fine. Thanks for asking. ”They both laughed.
Robinhood’s CEO went on to explain what happened, calling the experience “stressful”. He said that after receiving the $ 3 billion order, his chief operating officer called someone high on the NSCC to discuss what to do. “There was another call and they reduced it from $ 3 billion to something like $ 1.4 billion,” Tenev reiterated that it was still a high number. His company then proposed a plan to the NSCC to “mark those volatile stocks that were only driving the closure of the activity’s position”.
Then, around 5:30 am PST, before the market opened, the NSCC came back and reduced the deposit requirement to $ 700 million, “which we then deposit and pay promptly,” emphasized Tenev. Recognizing that the change was bad for customers, Robinhood’s CEO said: “We had no choice in this case. We had to meet our regulatory capital requirements, so the team did what it could to ensure that we were available to customers. ”
The Spacex CEO also asked: “Who controls this organization, this clearinghouse?” Tenev replied: “It is a consortium. It is not quite a government agency. I don’t really know the details of it all. ”However, he emphasized that” To be fair … I think there was a legitimate type of turmoil in the markets … so there is probably some extra risk in the system that justifies higher requirements, so it’s not entirely unreasonable. ” He noted that many other brokers were in the same situation and had to restrict the same activity.
“So, it seems that this organization calls you and they basically have a gun to their head: either hand this money over or else,” summarized the Spacex CEO, elaborating:
Basically, what people are asking is whether you sold your customers down the river or had no choice. If you had no choice, that is understandable, but then we have to find out why you had no choice and who are these people who are saying that you have no choice.
“I think that is fair. We have to meet these requirements. Financial institutions have requirements, ”replied Tenev. However, he suggested that it would be useful to know the formula that the NSCC uses to calculate these requirements so that companies can plan better.
Musk started to ask if there was external pressure forcing Robinhood to take the action he did. Tenev said there is “a rumor that Citadel or other market makers have pressured us to do this”. However, he clarified, “this is simply false”, emphasizing that “this was a clearinghouse decision and was based only on capital requirements, so from our perspective, Citadel and other market makers were not involved in this. . “
During the same Clubhouse interview, Elon also revealed that he is a bitcoin supporter and should have bought the cryptocurrency eight years ago. He believes that bitcoin is about to gain wide acceptance by traditional finance people. On Monday, Robinhood raised another $ 2.4 billion from shareholders after securing $ 1 billion last Thursday.
What do you think of the explanation from the CEO of Robinhood? Let us know in the comments section below.
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