Speaking on CNBC with Andrew Sorkin, Robinhood CEO Vlad Tenev said that the decision to limit buying in GameStop (among other securities) was not “at the direction of any marketmaker or hedge fund or anyone we route to or other market participants.” He added that Robinhood did not have a liquidity problem.
Sorkin began by saying, “Explain what happened today.”
Tenev: Thank you for having me on the show again, Andrew. So what happened today, as you pointed out, we had to make a very difficult decision. It’s been a challenging day. We made the decision in the morning to limit the buying of about 13 securities on our platform. So to be clear, customers could still sell those securities if they had positions in them, and they could also trade in the thousands of other securities on our platform. So it was a difficult decision, and that’s what we had to do as part of normal operations.
Sorkin: But explain then, why did you do this? Did the SEC call you and tell you you had to do this? Was there a problem inside the company in terms of liquidity, in terms of the amount of deposits that you had to put in front to the exchanges? What led to this?
Tenev: Sure. And let me explain exactly how this works — oh, first of all, I want to address some of the misinformation that’s been out there ’cause there’s a lot of it. We absolutely did not do this at the direction of any marketmaker or hedge fund or anyone we route to or other market participants. The reason we did it was because Robinhood is a brokerage firm; we have lots of financial requirements including SEC net capital requirements and clearinghouse deposits. So that’s money that we have to deposit at various clearinghouses. So some of these requirements fluctuate quite a bit based on volatility in the markets, and they can be substantial in the current environment where there’s a lot of volatility and a lot of concentrated activity in these names that have been going viral on social media.
So we’re really in unprecedented times, and in order to protect the firm and protect our customers, we had to limit buying in these stocks. And to be absolutely clear, again —
Sorkin: But it sounds to me though, that you’re suggesting there was a liquidity problem inside the firm. And my question about that, then raises all sorts of new questions about whether there’s a systemic issue underneath the system and underneath the company unto itself.
Tenev: No, there’s no liquidity problem, and to be clear, this was done pre-emptively. So we did this proactively, and thousands of other securities remain tradeable on the platform. Customers that held these positions were able to sell them, and we’re doing what we can to allow buying and to remove these restrictions in the morning. But also, you might have seen, Robinhood has been the number one app in the app store overall. So we have seen unprecedented interest due to the fact that finance has been culturally [relevant] in a way that it hasn’t been before and these stocks are going viral on social media. And I think it’s really interesting to juxtapose against some of the other questions that we’ve been having before this. Of course Robinhood stands for everyday investors. From the very beginning, we have stood for investors, opening up access and giving them the ability to trade commission-free in whatever they want. And we’ve gotten a lot of criticism that maybe there should be more restrictions. So it pains us to have had to impose these restrictions, and we’re going to do what we can to enable trading in these stocks.
Sorkin: But what do you tell the Robinhood investor who says, “Look at the screen. I’m losing money. You are not allowing me to buy this, and by the way, I’m going to have to sell it for less money because of what you did.”
Tenev: Well, to be clear, we’re not allowing people to buy it, but they can sell positions that they have. I feel a little bit — I know how Clorox and Lysol felt in the pandemic when they were running out of hand sanitizer and supplies. We just haven’t seen this level of concentrated interest market-wide in a small number of names before so we understand our customers are upset. We’re doing what we can to re-enable buying in these names, and we stand with our customers, we stand for the everyday investor, and we do believe that you should be able to buy and sell the stocks that you want to, subject to all requirements, and that’s what we’re working day in and day out to make possible.
Sorkin: What do you say to the customer who says, “Look, maybe I shouldn’t be on Robinhood anymore. If they’re gonna not — if they’re gonna shut me out right when I need to be on the service, maybe I should go to alternative service.”
Tenev: Look, we realize customers are upset with this. It was not an easy decision. Ultimately, the team made the correct decision here, so what we can do is move forward, focus on giving customers the most stable and reliable platform going forward, and we’ve invested a lot in that and we’ve actually seen some great progress, and taking all the steps we can to make sure customers can buy securities that they want to buy without restrictions in the future.
Sorkin: When you look at the trading in these stocks over the past several days, do you think they’re divorced from reality? Are you concerned that the investors that are involved in this are doing these things for reasons that they fully understand and they fully understand the risks involved?
Tenev: I’m obviously a big believer in more education. I want to make sure that we give customers all the tools and educational resources that we can possibly give them. This is really about access, and access is something I’ve been super-strong about from the very beginning in the face of a lot of criticism and questions about whether we should be granting people access in the first place. So yes, I think people need to be informed, they need to be educated. We do want to give them the ability to do that, but I also believe that access is a very powerful thing. The more individual investors have access to the markets, the better off we will be, and we’re gonna work tirelessly, day in and day out to make sure customers have that access. It’s in the name; it’s everything we stand for.
Shorter #Robinhood CEO on CNBC: Hey, we still have thousands of other companies you can trade! And we're NUMBER ONE on app stores! Yay!
"Of course, Robinhood stands for everyday investors. From the very beginning we have stood for investors, opening up access[.]" pic.twitter.com/9RaGbL5r9g
— Curtis Houck (@CurtisHouck) January 29, 2021
WOW.#Robinhood's CEO made things WORSE: "We realize customers are upset with this. It was not an easy decision. Ultimately, the team made the correct decision here. So what we can do is move forward, focus on giving customers the most stable and reliable platform." pic.twitter.com/afxeMXxQGI
— Curtis Houck (@CurtisHouck) January 29, 2021
The interview continued below:
Sorkin closes by asking what'll happen if the level of buying again pops up and they decided to act.#Robinhood CEO: "We're doing a lot of things we want to obviously allow buying safely for the firm and for the customers…We should have been out there a little bit sooner." pic.twitter.com/UybH1Lv30c
— Curtis Houck (@CurtisHouck) January 29, 2021