REUTERS / Brendan McDermid
- Robinhood was asked last week for a $ 3 billion down payment to cover trading risks on highly volatile stocks.
- That’s why the brokerage imposed trading restrictions last week, CEO Vlad Tenev told Elon Musk.
- After Robinhood curtailed retail, the clearing house cut that figure to $ 700 million.
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Robinhood imposed trading restrictions after a securities clearinghouse asked the brokerage for $ 3 billion to back up transactions in GameStop and other volatile Reddit-touted stocks, CEO Vlad Tenev told Elon Musk in a live stream on Clubhouse on Monday.
Musk introduced Tenev on the show as “Vlad the Stock Impaler” and asked him to explain what exactly had happened to Robinhood. “What happened last week? Why couldn’t people buy the GameStop stock? People are demanding answers, and they want to know the truth,” he said.
Tenev said the National Securities Clearing Corporation (NSCC) filed an unusual request early Thursday morning to make a $ 3 billion down payment to cover the trading risk.
Robinhood failed to do that, because at the time, the stock trading app had raised just $ 2 billion in venture capital.
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Musk snatched up the CEO further and asked, “Did you sell your riverside customers or didn’t you have a choice?”
Tenev explained that the clearinghouse’s request was “about an order of magnitude more than it is normal”. But after Robinhood agreed to prevent private investors from making further purchases of highly volatile stocks, the NSCC agreed to lower that figure to $ 700 million early Thursday. The company explained its settlement process in a statement on Saturday.
Robinhood and other brokers are required to hold accounts with clearing houses. The minimum required deposit increases as risk increases, hence the requirements for a capital injection.
Tenev pointed out that last week Robinhood had raised more than a billion in capital within 24 hours to ease trade restrictions. At the same time, he expressed regret about the limits it had set. “We knew this was a bad outcome for customers,” he said. “People get really pissed off when they hold stocks and want to sell them and can’t.”
On Monday, the brokerage narrowed the list of restricted stocks from 50 to 8.
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