Last week, popular trading app Robinhood temporarily restricted stock purchases of GameStop and other shorted stocks, a decision that was met with significant backlash and the launch of investigations by several congressional committees.
In a Monday interview with Tesla founder Elon Musk, Robinhood CEO Vlad Tenev explained why Robinhood restricted traders from buying shares on GameStop.
“Spill the beans, man — what happened last week?” Musk asked Tenev during a broadcast on Clubhouse, an audio-streaming app, the New York Post reported.
“The people demand an answer, and they want to know the details and the truth,” he added.
According to Tenev, Robinhood restricted trading after facing pressure from the National Securities Clearing Corporation (NSCC), an organization that settles stock trades between brokers.
Robinhood is required to deposit money with the NSCC based on several factors including the volatility of trading activity, Tenev explained. Last Thursday, Robinhood received a request from the NSCC for a deposit of around $3 billion, which is much larger than usual.
“Just to give context, Robinhood, up until that point, has raised … around $2 billion in total venture capital up until now,” Tenev said. “So it’s a big number.”
In response to the NSCC’s deposit request, Robinhood temporarily blocked traders from buying GameStop shares, Tenev explained.
The NSCC eventually lowered its deposit request to $700 million after Robinhood devised a plan to manage risk in GameStop and other volatile stocks.
During the interview, Musk said that the NSCC should be more transparent about why it asked Robinhood for such a large deposit.
“I guess people really just want to know — if you had no choice, then you had no choice, it’s a gun-to-the-head situation. And then that’s understandable,” Musk told Tenev. “But then whoever put that gun to your head should be willing to answer to the public.”
In a statement to the New York Post, the NSCC’s parent company, the Depository Trust & Clearing Corporation, said the NSCC collects money “according to calculations that are set forth in its rules.”
“When volatility increases, portfolio margin requirements increase too, and NSCC clearing members may pass on these costs to their clients, including brokerages that clear through them … Margin requirements protect the entire industry against defaults and systemic risk in volatile markets,” the Depository Trust & Clearing Corporation told The Post.