Vladimir Tenev, chief executive and co-founder of the online stock brokerage Robinhood, opened up Monday in a conversation with Tesla’s Elon Musk about Robinhood’s decision to restrict trading last week on several spiking stocks including GameStop that drew outrage from users of the trading app.
Late Sunday evening, Musk and Tenev convened on the invite-only voice chat app Clubhouse and discussed the situation. Musk pressed the Robinhood co-CEO on why his firm opted to curb trading on 13 equities.
“What happened last week? Why can’t people buy the GameStop shares? People demand an answer and want to know the details and the truth,” Musk asked.
Tenet said the events of the last few days have been “surreal” and explained that Robinhood’s operations team received a request at 3:30 a.m. PT on Thursday from its clearinghouse, National Securities Clearing Corporation, demanding a $3 billion deposit from the investment platform.
“This was obviously nerve-wracking,” Tenev said.
Musk asked why the demand was so high, saying, “it sounds like an unprecedented increase in demand for capital. What formula did they use to calculate that?”
Tenev said the formula was “not fully transparent” and “not publicly shared,” noting that Robinhood has raised only about $2 billion in total venture funding.
The NSCC later relented and reduced the $3 billion demand down to about $1.4 billion, but not before Tenev said Robinhood was forced to restrict trading in an attempt to meet the demand.
“We had no choice in this case,” Tenev told Musk. “We had to conform to our regulatory capital requirements.”
On Thursday, Robinhood restricted buying or trading in GameStop stock along with several other formerly obscure stocks that surged following a scramble of social media-driven trading activity this week.
The popular stock market app informed users that they could close out positions on the highly volatile stocks but could not purchase additional shares. GameStock shares quickly sank in response to the news of the restrictions. The company’s shares had skyrocketed last week to above $400 from less than $19 at the end of 2020.
Robinhood, which has about 13 million users, was a key tool in efforts by a group of Reddit users from the subreddit WallStreetBets who plotted to push the stock of GameStock and several other companies higher in an attempt to undermine traditional Wall Street hedge funds that had shorted the companies.