REUTERS / Brendan McDermid
- Robinhood was asked last week for a $ 3 billion deposit to cover trading risks in highly volatile stocks.
- That is why the broker imposed trade restrictions last week, CEO Vlad Tenev told Elon Musk.
- After Robinhood limited retail trade, the clearinghouse reduced that number to $ 700 million.
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Robinhood established trading restrictions after a securities clearinghouse asked the broker for $ 3 billion to support negotiations on GameStop and other volatile actions promoted by Reddit, CEO Vlad Tenev told Elon Musk in a live broadcast at the Clubhouse on Monday.
Musk introduced Tenev on the show as “Vlad the stock impaler” and asked him to explain what exactly happened to Robinhood. “What happened last week? Why were people unable to buy GameStop shares? People demand answers and want to know the truth,” he said.
Tenev said the National Securities Clearing Corporation (NSCC) submitted an unusual request early on Thursday to make a $ 3 billion deposit to cover the trading risk.
This was not something Robinhood could manage, because at that time, the stock trading app had raised only $ 2 billion in venture capital.
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Musk further questioned the CEO, asking, “Did you sell your customers down the river or didn’t you have a choice?”
Tenev explained that the clearinghouse’s request was “about an order of magnitude more than it normally is”. But after Robinhood agreed to restrict retail investors from making further purchases of highly volatile stocks, NSCC agreed to reduce that number to $ 700 million on Thursday. The company explained its liquidation process in a statement on Saturday.
Robinhood and other brokers are required to maintain accounts with clearing agencies. The required minimum deposit increases as the risk increases, hence the requirements for a capital infusion.
Tenev mentioned that Robinhood raised more than a billion in capital in the 24 hours of last week to loosen trade restrictions. At the same time, he regretted the limits imposed. “We knew it was a bad result for customers,” he said. “People are very angry if they have stocks and want to sell them and can’t.”
On Monday, the broker reduced the list of restricted shares from 50 to 8.
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