Robinhood CEO Vlad Tenev tells Elon Musk nothing 'shady' about GameStop trading halt & insists the move was 'reasonable'
ROBINHOOD CEO Vlad Tenev has told Elon Musk there was nothing "shady" about the firm's decision to halt trading in Gamestop shares and insisted it was "reasonable".
It comes after the move attracted criticism and accusations of market manipulation from businesspeople and politicians from both sides of the political divide.
On Thursday, Robinhood restricted trading on thirteen equities, including GameStop and AMC Entertainment.
Shares in the retailer had risen dramatically in price over the previous few days as users of internet forum Reddit bought them in large quantities in an attempt to disrupt a short sell by a number of hedge funds.
A short sell is a process in which traders borrow shares and immediately sell them on in anticipation of a fall in price.
Once the price falls, the shares can be bought back and returned to the lender, with the trader pocketing the price difference as profit.
Discussing Robinhood's decision with Tesla CEO Musk in a session on audio app Clubhouse, Tenev said: “We had no choice in this case.
“We had to conform to our regulatory capital requirements.”
He said that clearing brokers like Robinhood are required to maintain certain certain levels of capitol by clearing houses like the National Securities Clearing Corporation (NSCC), which handles stock trades between brokers.
He said the amount a firm is required to hold each day depends on factors like market volatility and its concentration in particular securities.
Tenev said that at 3.30am Pacific Time on Thursday, Robinhood received a request from the NSCC for a $3 billion security deposit, “an order of magnitude more than what it typically is”.
He said the firm managed to raise $1billion from existing investors, and that the NSCC later agreed to lower the requirement to $1.4billion, but that Robinhood still needed to limit its trade.
Speaking at the time, Tenev said the move had to be made “in order to protect the firm and protect our customers".
The decision was criticised by numerous figures as an attempt to exclude small-time investors from the kind of activity from which Wall Street traders frequently profit.
Others said it was likely that larger-scale traders were also involved in buying the GameStop shares, and that artificially inflating the price of a stock amounted to market manipulation whoever was doing it.
Musk, who previously tweeted support for the Reddit traders, asked Tenev: “Did something maybe shady go down here?”
Tenev said: “I wouldn’t impute shadiness to it or anything like that.
“The NSCC was reasonable subsequent to this.”
Tenev was also asked whether trading could be limited again at any point in future.
“I think there’s always going to be some theoretical limit. We don’t have infinite capital," he said.
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