Elon Musk Absolutely Grills Robinhood CEO in ‘Electric’ Interview

Mandatory Credit: Photo by FILIP SINGER/POOL/EPA-EFE/Shutterstock (10763436v)Tesla and SpaceX CEO Elon Musk leaves the Westhafen Event & Convention Center after attending the CDU/CSU faction meeting Berlin, Germany, 02 September 2020.

During last week’s short squeeze of GameStop (NYSE: GME), the brokerage firm Robinhood halted trading in that and other names that had been targeted by day traders, many of them from the subreddit WallStreetBets.

See: Robinhood Blocks Traders on Reddit and Beyond from Buying GameStop Stock – Make Sense of the Market Mayhem
Find: Meet All the Major Players in the Robinhood vs. GameStop Saga 

Robinhood has no minimum account size and works through an easy phone app, making it friendly to small customers who like to trade. GameStop shares traded freely at several other brokerage firms and apps, but anyone who used Robinhood was shut out. This made customers, lawmakers, and many famous investors incredibly angry and suspicious – and raised questions about who was calling the shots. Was Robinhood protecting professional investors? Was Citadel, the hedge fund company that executed most Robinhood trades, putting pressure on the brokerage?

After a weekend of speculation, the CEO of Robinhood, Vlad Tenev, appeared on Elon Musk’s Clubhouse audio app to explain what happened. The Washington Post reports that the halt was ordered by securities regulators until Robinhood could increase its capital.

And listeners were floored by the way Musk took Tenev to task, especially because even late last week, it was unclear whether Musk was on the side of the Redditors or the hedge funds.

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See: Learn from the GameStop Frenzy with This Quick Guide to Short Selling
Find: If You Would Have Bought Only 100 Shares of These 10 Stocks, You Would Be Incredibly Rich

Over the course of the interview, Tenev revealed that the National Securities Clearing Corporation apparently asked Robinhood to post $3 billion to continue trading in GameStop and other stocks targeted by day traders.

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The clearing firms like NSCC ensure that cash and shares are exchanged to complete trades. The concern was that so many customers had used margin to buy shares that they might not be able to cover their trades if they lost money. Until Robinhood could put up the money to show that the trades were protected, the NSCC would not handle them.

At this point, Robinhood had only $2 billion in trading capital, so it had to scramble to raise funds.

See: Gen Z and Millennials Lead ‘Retail Investing’ Trend – Owning Up to 25% of the Stock Market
Find: Tesla CEO Elon Musk Loses Billions, Touts Etsy and GameStop, Lands Rockets

Tenev said that he would have appreciated more transparency about the clearing firm’s requirements, and that is likely to be the focus of legislators and regulators after all this shakes out. Of course, discussing it on an invitation-only app chat isn’t exactly transparent, either.

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About the Author

Ann Logue is a writer specializing in business and finance. Her most recent book is The Complete Idiot’s Guide: Options Trading (Alpha 2016). She lives in Chicago.
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