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Reddit’s WallStreetBets Founder on Robinhood restrictions: ‘It doesn’t make sense’

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Reddit’s WallStreetBets Founder Jaime Rogozinski joins Yahoo Finance Live to discuss Robinhood restricting transactions for GameStop, AMC and others.

Video Transcript

ZACK GUZMAN: Welcome into "Yahoo Finance Live." I'm Zach Guzman alongside Akiko Fujita, kicking off with big breaking news we're seeing play out in today's session as many brokers, including Robinhood, moved to restrict trading on some of the names we've seen. Retail investors piling into the likes of GameStop and AMC.

That news seeming to go the broader market into calmer territory today after we saw that big sell off yesterday, the Dow losing about 2% in yesterday's session. But today, the Dow up by about that same margin. Of course, we did get some big earnings results coming in from Facebook and Apple and Tesla perhaps playing their part as well.

But we really can't overstate the moves that we've seen play out in some of those retail favorites. As I said, GameStop down about 30% in today's session after we saw restrictions placed on that trading. AMC shares also down heavily in today's session as trading on AMC shares were restricted as well.

It's sparking a lot of chatter right now about how free the, quote unquote, "free market" may be here as we are seeing trading activity from a lot of retail investors restricted. Let's kick off the show there with a chat with the man behind the Reddit group that sparked a lot of this interest, not just in GameStop but a lot of these retail favorites here.

The man behind that Reddit WallStreetBets group joins us now Jaime Rogozinski, the WallStreetBets founder joins us. Jaime, thanks for hopping on to chat here today. Obviously, there's a lot to get into. But I guess we'll just start with, what do you make of the way that we are now seeing a lot of exchanges restricting some of the trades that you guys in your Reddit group talked about?

JAIME ROGOZINSKI: Yeah, you know, this is still developing news, and I've barely had a chance to really catch up to it. But it certainly does bring up that very question that you brought up, which is, how free exactly is the market? Why are the brokers taking action? What are the forces behind there?

Obviously, they're pressured under. It doesn't make sense for Robinhood to do something like that, given their target demographic. Makes sense for some of the other brokers. But the first question I have is, why did they do that? Where did that pressure come from? And those people are effectively now controlling the price of the market as well.

So how free is it? That's an excellent question.

AKIKO FUJITA: Jaime, you indicated in an interview that you gave to another outlet about that this has kind of grown well beyond what you initially anticipated. And I'm wondering when you initially set up this feed, what was the motivation?

JAIME ROGOZINSKI: You know, when I first started the forum back in 2012, I was really looking for a place for people that wanted to take high risk, high return trades in a way that they can learn about, that they were unapologetic about the fact that they were taking risk. And really, it was just hoping to talk about a different use for the stock market. Certainly didn't expect for it to balloon the way that it did.

ZACK GUZMAN: Yeah, and Akiko and I were talking about it yesterday. I mean, you look at some of the thesis, the fundamental analysis that was going on there, particularly among one of your users talking about the GameStop short squeeze. And seeing this now play out, it seems odd.

Did you expect maybe as much of backlash to what we're seeing now with the exchanges talking about needing to protect users from some of the trades that seem to have a lot of fundamental analysis behind it?

JAIME ROGOZINSKI: You know, we've had this kind of thing happen before. It's not the first time. About a year ago, the exact same thing happened, obviously on a much smaller scale and didn't get this type of attention. So it's not necessarily new.

But I do start questioning this-- I understand the role of the regulators trying to protect the investors, and certainly, they do need protection. That's what they're there for. But I think the majority of the people that we're talking about that are involved in these types of trades, using the word investor doesn't have any place in this conversation.

They're making these bets and they're betting that this thing is going to go up and not buying the shares. A lot of these moves are caused because of the stock options that they're buying, which, by definition, is a very short-term play. And as soon as this bubble bursts, as people are calling it, I have zero doubt they're going to switch their bets to making the stock-- you know, they're going to be betting that the stock price is going to go down.

And they'll most likely make money in that direction as well, you know? It's harder protecting those individuals. I don't know that they need protection. I think they know full well that what they're doing is gambling, and they're perfectly fine with losing whatever money they're placing into these bets.

AKIKO FUJITA: So you don't think the SEC should be stepping in at all?

JAIME ROGOZINSKI: No, no, that's not what I said. The SEC definitely has a role for protecting investors. I'm just saying the people that are doing a lot of the people behind this particular move that are driving this price up are not investors. The SEC definitely has a role in the place. I don't envy their position because their job is to make sure that things are functioning properly. What we're seeing today is anything but.

So-- and I do believe that they have a responsibility to do something about it. The thing that I question is whether they have the tools to do it, both either regulatory, you know, as far as what the current rules are established, and/or the resources. We're talking about a huge number of people.

And depending on how they decide to go about trying to stabilize this, the fact that they're having brokers step in, says volumes to me, as opposed to the SEC.

AKIKO FUJITA: So if we're talking about SEC regulation, where do you think the responsibility lies? Should the regulation be about protecting the individual investors? Should it be about increased disclosure on the hedge fund side? I mean, if the SEC director was listening, what specifically would you say?

JAIME ROGOZINSKI: I mean, first of all, I'm not an expert or a lawyer or any of these things, so my [INAUDIBLE] is just an opinion. But once again, there's this new paradigm that people need to realize. This term, investor, has got a place but not in this conversation. What these people are doing is not investing, they're using the stock market like a casino in a very unapologetic and transparent way.

They're not posting information about the fundamentals, they're posting funny videos on TikTok. And they're encouraging other people to go ahead and risk the same. They're not investors, and they're going into this full well knowing that they're probably going to lose their money. And the people that are doing this are OK with this.

That's not to say that there aren't people that are getting hurt by it. It's impossible to tell. But it's hard to imagine that some people aren't reading these headlines and are deciding to jump on the bandwagon without understanding what they're doing and they end up holding them back. So yeah, the SEC has to take an approach. I can't-- they have an impossible task on their hands, so I do wish them luck.

ZACK GUZMAN: Yeah, and we know that there are some things in place. You think about how much trading has been halted on this just because of the circuit breakers that are in place to kind of break some of the volatility. Those are there, we're seeing exchanges take action here as well.

It's interesting to hear you talk about the bets, of course, that's the name of the Reddit group here, WallStreetBets, not necessarily Wall Street investment theses. But when you think about where this goes, Akiko and I have been debating for a long time now through all this, the end game for the people doing this, whether it is to send a message to hedge funds or if it's just to really, as you said, play a speculative investment, to make money, gamble on this.

I mean, how do you see this ending? Is it just going to end with more people getting out, taking profits, seeing a slow decline? What do you think plays out?

JAIME ROGOZINSKI: I mean, I'll work backwards. More people getting out and taking profits, people can make profits in both directions. As long as these things, these prices, are moving, they're agnostic. They don't care what direction it is. They're not buying the stocks, they're not waiting for dividends, and they're not using this for their retirement fund.

As far as where this is going, I know this group inside and out. They don't have the motivation or the organizational capacity to decide to start a new movement, the new Occupy Wall Street movement, although, there's obviously parallels being drawn, to want to take down the hedge funds. They probably-- my guess is they started with saying, let's make some money, like they always have and like they always do.

And they started making money. And then this situation started snowballing, where the price of GameStop starts skyrocketing. And then the hedge fund-- you know, then we get this public bout between the hedge funds and the investor. And all of a sudden, it feels good. It's like, hey, look, we just knocked over Melvin Capital.

You know, that's a result. I don't think they sat there and said, hey, let's go ahead and knock out a hedge fund today. That's-- it's not what happened. But it's certainly what did happen, so it put ideas into their heads. So who knows what they'll do next?

AKIKO FUJITA: And Jaime, we've been showing a number of stocks while you've been talking that have really seen a huge swing as a result of the retail investors. GameStop one, but also BlackBerry as well as AMC Entertainment. Are you positioned in any of these stocks?

JAIME ROGOZINSKI: No, no, absolutely-- well, first of all, I have not been a moderator of WallStreetBets since April of last year. And if I was, I most definitely would not have been involved in any of this. I do worry or question what the possible repercussions of the current moderators are involved because they do have some influence as to the conversations that take place.

That aside, no, I'm not. I'm not involved with any of these. I'm but a passive speculator that is very much enjoying and appreciating the magnitude of this.

ZACK GUZMAN: Yeah, it's clearly grown into something a lot larger than I think even people seeing this play out, what, at the beginning of the week may have thought we'd be here talking about the role of WallStreetBets here now, as we continue to see all of these stocks move in various directions. But Jaime Rogozinski, WallStreetBets founder from Reddit, appreciate you coming on to share your take on how it's evolved. Thanks again.