Hey, I’m a retard that listened to this and transcribed it. This is a small snap shot of the entire conversation. DISCLAIMER: I’ve also removed the “uhs”, some filler words. and other laughter noises so you shouldn’t use this as a legal transcript or in media or at all unless you’re retarded. You’re welcome.
The recording starts out mid speech:
Vlad Tenev: “…Robinhood is actually. this is important. It’s actually a couple of companies. So there’s an introducing broker-dealer called Robinhood Financial and that basically is the app that you know and love. It processes trades, your a customer of Robinhood Financial.
Then there’s the clearing broker dealer, Robinhood Securities, that clears and settles the trades.
And then we have Robinhood crypto that is our crypto business. All of these are different entities that are differently operated.
So Basically Wednesday of last week, we just had unprecedented volume, unprecedented load on the system.
A lot of these so called ‘meme-stocks’ were going viral on social media and people were joining Robinhood and there was a lot of net buy activity on them (the meme-stonks).
And Robinhood at this time, was I-think, number one on the IOS app store and pretty close, if not number one, on Google Play as well.
Thursday Morning, right.
So I’m sleeping, but at 3:30am pacific, our Operations team receives a file from the NSCC which is the National Securities Clearing Corporation, so basically as a Clearing Broker, and this is where Robinhood Securities comes in, we have to put up money to the NSCC based on some factors including things like Volatility of the trading activity, concentration into certain securities, and this is the equities business.
So it’s based on Stock trading and not options trading or anything else. So they gave us a file with a deposit, and the request was around $3Billion dollars which is about an order of magnitude more than what it typically is.”
Lord Elon Musk-Chan: “Now why is that so high, it sounds like and unprecedented increase in capital. What formula did they use to calculate that?”
Vlad: “Just to give context, Robinhood up until that point has raise a little bit around $2 billion dollars in total venture capital up in till now. So it’s a big number. 3 Billion is a large number.
So basically the detail are, we don’t have the full details, it’s a little bit of an opaque formula, there’s a component called the VAR. Which is Value At Risk, which is based on some fairly quantitative things.
Although, it’s not fully transparent. There are ways to reverse engineer it, but it’s not publicly shared.
And then there’s a special component which is Discretionary. So that kind of acts as a multiplier-“
Lord Elon Musk-Chan: “Discretionary meaning like ‘its just their opinion’?”
Vlad: “yeah, it’s a little bit- I mean, I’m Sure there’s definitely more than just their opinion but-“
Lord Elon Musk-Chan: “Well, I guess. What everyone wants to know is did something maybe shady go down here? Seems weird that you’d get a sudden $10 billion dollar demand. You know, at 3 in the morning.”
(They started talking over eachother for a second)
Lord Elon Musk-Chan: “sorry how much?”
Vlad: “It was $3 Billion US Dollars”
Lord Elon Musk-Chan: “okay, $3 Billion suddenly out of no where. And what perc-“
Vlad: “I wouldn’t impute shadiness to it or anything like that”
Lord Elon Musk-Chan: “okay”
Vlad: “And actually the NSCC was reasonable subsequent to this, and they’ve been. They worked with us to actually lower it. So it was unprecedented activity.
I Don’t have the full context about what was going on in the NSCC to make these calculations but essentially-“
Lord Elon Musk-Chan: ” Is anyone holding you hostage right now?”
Vlad: “Uh, no, ha, I’m fine”
Lord Elon Musk-Chan: “Blink Twice”
Vlad: “Thanks for asking, anyways. This was obviously nerve-racking, and I actually was asleep at this point. The operations team was fielding this at 3 o’clock and then we got back and put our heads together. Our Chief Operating Officer basically said ‘look, let’s call up the higher ups at the NSCC and kind of figure out what’s going on, maybe there is some way we can work with them’
and basically there was another call and they lowered it to something like $1.4 Billion dollars from $3 (billion dollars).
So we were making some progress, right, but it’s still a high number.
And then we basically proposed, let’s explain how we plan to- Let’s explain how we will manage risks in these symbols throughout the day.
We’ve proposed marking these volatile stocks that were kind of driving the activity to position closing only.
And then at about, an hour before market open, so 5:30 or 5 in the morning, they came back and said ‘the deposit is $700Million’
Which we then deposited and paid promptly and then everything was fine.
So that essentailly explained why we ahd to mark these symbols as position closing only. And also why, we didn’t want to- we knew this was a bad outcome for costumers.
Part of what’s been really difficult is, Robinhood stands for democratizing access to stocks and we want to give people the access and that’s been very very challenging.
But we had no choice in this case, we had to conform to our regulatory Capital requirements and so the team did what they could to make sure we were available to customers”
Lord Elon Musk-Chan: “Who controls this Organization? This Clearing House.” (NSCC)
Vlad: “It’s a consortium, it’s not quite a government agency. – I don’t really know the details of all that.”
Lord Elon Musk-Chan: “Okay”
Vlad: “And to be fair, like, we were – I think there was legitimate turmoil in the markets. These are unprecedented events with these meme-stocks and there was a lot of activity. So there probably is some amount of expert risk in the system that warrants higher requirements.
So it’s not entirely unreasonable. But we did operational processes to make sure that customers that had positions could sell their open positions.
Because obviously restricting someone- we got a lot of questions about it.
Okay you had to restrict buying, why didn’t you also restrict selling and the fact of the matter is people get really pissed off if they are holding stock and they want to sell it and they can’t right.
So, I think that’s categorically worse.
And lots of other brokers, I think, were in the same situation. Robinhood was in the news, but you’ve sort of heard this industry wide right?
Other brokers basically restricted the same exact activity.”
Lord Elon Musk-Chan: “Alright, So it sounds like this organization calls you up and they basically have a gun to your head, either hand over this money, or-else.
Basically what people are wondering is, did you sell your clients down the river? or did you have no choice?
If you had no choice, that’s understandable. But then we got to find out why you had no choice and who are these people that are saying you have no choice?”
Vlad: “yea, I think that’s fair. You know, we have to comply with these requirements- financial institutions have requirements.
The formula behind these requirements. I think it would be more ideal if there was a little bit more transparency so we could plan better around that.
But, to be fair, we were able to open and serve our customers and 24 hours later, our team raised over a $billion dollars in capital so that when we do open tomorrow morning, we’ll be able kind of relax the stringent position limits that we put on these securities on Friday.”
Lord Elon Musk-Chan: “will there be any limits?”
Vlad: “Well, I think there’s always going to be some theoretical limit, like we don’t have infinite capital right?
And on Friday there were limits so there always have to be some limit. I think the question is ‘will the limits be high enough to the point where they won’t impact 99.9+% of customers’
If someone were to deposit $100 Billion dollars and decide to trade in to one stock, that wouldn’t be possible.”
Lord Elon Musk-Chan: “alright. . . Alright well, I guess people really just want to know if you had no choice than you had no choice. It’s kind of a bad situation. Then that’s understandable.
But then whoever put that gun to your head should (garbled) to the public”
Vlad: “yea listen, I know there’s processes, these are unprecedented times and to be fair to those guys. They’ve been reasonable.
So we are- I think the one thing that maybe is not clear to people is that Robinhood is a participant in the financial system so we have to work with all of these counterparties. So we do get a lot of questions about ‘why do you work with market makers, why do you work with clearing houses’.
Vertically integrating and getting- I mean it’s hard enough to build a (garbled) producing clearing broker-dealer. Not too many people have done that.
But the financial system that allows customers to trade shares is sort of a complex web of multiple parties.
Everyone says that it could be better, it could be improved. It’s just a necessity of trading equities in the US that you have to do all these things.”
Lord Elon Musk-Chan: “I mean, to what degree are you beholden to Citadel?
I mean, basically, if Citadel is unhappy, then what happens?”
Vlad: “Yea, so there’s a rumor that Citadel or other market makers pressured us in to doing this. That’s just false.
Market makers execute our trades. They execute trades of every broker-dealer. This was a clearing house decision and it was just based on the capital requirements.
From our perspective, Citadel and other Market Makers weren’t involved in that.”
Lord Elon Musk-Chan: “But wouldn’t they have a strong say in who got put in charge of that organization (NSCC) since it is an industry consortium, not a government regulatory agency.”
Vlad” Uhm, I don’t have any reason to believe that. I think that’s just like- Then you’re getting into kind of the conspiracy theories a little bit. So I just have no reason to believe that that’s the case, you know?”
Lord Elon Musk-Chan: “Okay. . . alright. . Well I guess we’ll see what happens with future actions. Coupled with a little insight for you, atleast its a little bit entertaining. -Are you not entertained?”
Conversation jumps off to a bunch of goodbyes and stuff
If you want a better video with more full text and all the deets, check it out by clicking here.
Looks like we got a new conspiracy theory with the NSCC, I mean, it’s totally plausible right? I’ll definitely do some digging on that in the future or at least until someone gets me suicided.
I’m short term bearish on Robinhood, we’ll see if more news comes out. On the bright side, they’ve got time to repair their image before their IPO. lmao.
*Not Valid Financial, Legal, Life, or Any Advice