Robinhood CEO GRILLED by Elon Musk Over Gamestop Controversy (Full ClubHouse Interview)

All right, well, it's full of beans, man. What happened last week? Why do you, uh, stop here? Why can't people buy the GameStop shares? The people demand an answer, and they want to know the details and the truth. Yep, yep, um.

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Hey guys, welcome back. So the saga continues. Guess what? Elon Musk, of all people, yesterday was able to sit down and talk with the CEO of Robinhood, Vlad, whatever his name is, and it was really interesting. I tell you what, if Elon wasn't the CEO of SpaceX and Tesla, he could very well be an investigative journalist because he actually got much more out of Vlad than the media outlets have gotten over the past few days.

So this is quite a long; I'm basically just going to shut up during this interview. I'll add a little bit of thoughts and opinions here and there, but really, I'm just going to let the interview play out. So, without further ado, let's have a listen and hear Vlad's explanation of why Robinhood decided to halt trading or halt buying of GameStop. When was it? Last Thursday? And from there onwards, so let's have a listen.

Elon: Okay, uh, Vlad, can you hear us?

Vlad: Glad to stop, Impaler. Hey guys, thanks for inviting me up. It's good to hang with all of you.

Elon: All right, Vlad, what really happened? Give us the inside scoop.

Vlad: All right, well, I was actually hoping that you would invite me up for the Fermi Paradox part because this has been a very surreal weekend and week for me. One of the really great things is all the people coming out of the woodwork to offer support for the company, offer, you know, advice. So, I got introduced today. Um, and actually, I should say, I just randomly downloaded Clubhouse a couple of days ago just to see what it was all about. So, this is my first time literally using the app.

But, um, yeah, I got introduced to your friend Antonio, Elon, who had some good advice for me, and then introduced me to you. You had some great advice, and then I figured, you know, I heard about this Clubhouse, and this has got to be part of the simulation, so I just thought, why not? So here I am. I'm actually, um, I'm actually an adherent to the simulation hypothesis.

Elon: All right, well, it's full of beans, man. What happened last week? Why do you, uh, stop here? Why can't people buy the GameStop shares? The people demand an answer, and they want to know the details and the truth.

Vlad: Yep, yep, um, okay, so let me start by giving a little bit of background. So, I'm the chief executive of Robinhood. We know, actually, I'll go through this quickly, don't worry. 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; you're a customer of Robinhood Financial. Then there's a clearing broker-dealer, Robinhood Securities, that clears and settles the trades, and then we have Robinhood Crypto, which is our crypto business, all of which—all of these are kind of different entities that are differently operated.

So basically, Wednesday of last week, we just had, you know, unprecedented volume, unprecedented load on the system. A lot of these, you know, 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. As you guys all know, Robinhood at this time, I think, was number one on the iOS App Store, and pretty close, if not number one on Google Play, as well. So just unprecedented activity.

And so Thursday morning, right? So I'm sleeping, but at 3:30 a.m. Pacific, our operations team received a file from the NSCC, which is the National Securities Clearing Corporation. So basically, as a broker, 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 the 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 three billion dollars, which is, you know, about an order of magnitude more than what it typically is, right? So three billion dollars—almost an order of magnitude more than normal. So for those that don't know, an order of magnitude—I had to look this up—is 10x.

So normally, the deposit would be about 300 million dollars. Today or this day, they were asking three billion dollars, which is just insane, and this is money that Robinhood has to hand over. And as Vlad's about to talk about, this is actually more money. So in Robinhood's life, the total amount of money that they've raised is about two billion dollars, so it's more money than Robinhood has ever raised in the history of their company, which is pretty insane.

Anyway, let's continue.

Elon: So, um, no, no, why is that so high? Like, this seems like—it sounds like this is an unprecedented increase in demand for capital. What formula did they use to calculate that?

Vlad: Well, um, yeah, and just to give context, you know Robinhood, up until that point, has raised, you know, a little bit around two billion dollars in total, uh, venture capital up until now, so it's a big number. Like, three billion dollars is a large number, right? So, um, basically the—and you know, the details are—we don't have the full details. It's a little bit of an opaque formula, but there's a component called the VAR of it, which is value at risk, and that's based on kind of some fairly quantitative things, although it's not fully transparent.

So there are ways to reverse engineer it, but it's not kind of publicly shared. And then there's a special component, which is discretionary. So, that kind of acts as a multiplier, and um, basically discretionary—a discretionary meaning like it’s just their opinion?

Yeah, they're, uh—it's a little bit... I mean, I'm sure there's definitely more than just their opinion, but, um, basically, I mean, I guess like it's based on growth. Everyone wants to know—what everyone wants to know—is, like, did something maybe shady go down here? Like, like, it seems weird that you'd get a sudden ten billion dollar demand, you know?

Elon: Three billion in the morning?

Vlad: Sorry, how much?

Elon: Yeah, it was three billion US dollars.

Vlad: Okay, three billion, around, you know, just suddenly out of nowhere.

Elon: And, uh, what—I wouldn't impute shadiness to it or anything like that. And actually, you know, the NSTC was reasonable subsequent to this, and you know, they worked with us to lower it. So, um, it was unprecedented activity. You know, we don't—I don't have the full context about, um, you know, what was going on in the NSCC to make these calculations.

But, um, yeah, essentially—is anyone with a large—I'm holding you hostage right now?

Vlad: No, no, I'm okay. Yeah, um, thanks for asking.

But anyway, so this was, uh, this was obviously nerve-wracking, and I actually was asleep at this point. You know, the operations team was fielding this at three o'clock. And then, um, you know, we got back, we put our heads together. Um, you know, 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's 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 three. So, okay, we're making some progress, right? And then, but it's still a high number. So, essentially, Vlad here is saying that there's kind of room to move, and it's not just a hard formulaic number that gets spat out at them, which I find is really strange. I would have thought it would be a little bit more, you know, this is the amount based on this, this, this, and this. It seems like there's a lot of subjectivity behind it. So, I don't quite understand how it all works. I'll be the first to put my hand up and admit that.

But pretty insane it went from three billion dollars to almost half of that, so that seems pretty wild. But anyway, let's continue.

And then, um, we basically proposed, well, let's explain how we plan to, um, let's explain how, you know, we'll manage risk in these symbols throughout the day. We proposed, um, marking these volatile stocks that were kind of driving the activity position closing only. And then, um, at about an hour before market close—market open, so 5:30 or 5 in the morning—they came back and they said, okay, uh, the charge is—or the deposit is 700 million, which we then deposited and paid promptly, and then, um, everything was fine.

So that essentially explains why we had to, um, we had to mark these symbols position closing only, and also why, you know, we didn't want to—we knew this was a bad outcome for customers. Um, you know, part of what's been really difficult is, um, Robinhood stands for, you know, democratizing access to stocks, and yeah, we want—we want to give people the access, so that's been very, very challenging.

Um, 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 for customers. So, once they told the clearinghouse that they were only going to let users sell GME and not buy, the deposit requirement went from, well, first of all, three billion, and then it went down to 1.4 billion and then down to 700 million.

This is insane! I wish I knew exactly how they come up with these numbers. And if you do know this area in depth, please explain it to me. Let me know down in the comment section below how do the clearinghouses actually come up with the deposit requirements, but I'd be really interested to know.

Anyway, pretty insane that it went from three billion and eventually by all the steps that Robinhood said, "What if we do this? What if we do this?" It got down to 1.4 and then 700 million. So, wow! Anyway, back at it.

Elon: Who controls this organization, this clearinghouse?

Vlad: Um, you know, it's a consortium. It's not quite a government agency. Um, you know, I don't really know the details of all of that, okay? But, you know, and to be fair, like, we were—we were, uh, I think there was legitimate sort of turmoil in the markets. Like, these are unprecedented events with these meme stocks, and, you know, there was a lot of activity. So, there probably is some amount of extra 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, 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're holding stock and they want to sell it, and they can't, right? So, I think that's—that's categorically worse.

So, um, and lots of other brokers I think were in the same situation. Robinhood was in the news, but you sort of heard this industry-wide, right? Other brokers basically restricted the same exact activity.

Elon: All right. So it sounds like this organization should, you know, calls you up and they basically have a gun to your head—either hand over this money or else.

Vlad: Um, and so, because I mean, like, basically what people are wondering is: did you sell your clients down the river? Or do you have no choice? If you had no choice, that's understandable, but then, you know, we gotta find out why you had no choice and who are these people that are saying you have no choice?

Vlad: Yeah, um, I think that's fair. You know, we have to comply with these requirements. Financial institutions have requirements. Um, you know, the formula behind these requirements, um, I think, um, it would obviously be ideal if there was a little bit more transparency so we could plan better around that.

Um, you know, but to be fair, we were able to open and serve our customers, and, um, you know, 24—24 hours later, our team raised over a billion dollars in capital, so that when we did open—uh, well, when we do open tomorrow morning, we'll be able to kind of relax the stringent position limits that we put on these securities on Friday.

Elon: 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. Um, so there's always—there's always going to have to be some limit. I think the question is, you know, will the limits be high enough to the point where, you know, some—they won't impact, you know, 99.9 plus percent of customers? Um, so if, you know, someone were to deposit a hundred billion dollars and decide to trade in one stock, like that, that wouldn't be possible, you know?

So this makes sense. Obviously, there is going to be some limit to how much one or users, just in general, can trade a particular stock based on these deposit requirements and how much money Robinhood has to hand over, as you know, for these deposits.

But I think Vlad—he recognizes the important issue here is to try and make sure that although there is a limit, you know, 99.9% of Robinhood users just don't feel that limit, right? So, it almost feels as though there is no limit to most users. Most users, their experience is not interrupted by any sort of limit.

That's going to be the balance that Robinhood is going to have to make—they're going to have to meet these clearinghouse deposits without putting their business at risk.

Okay, so obviously Robinhood itself doesn't want to put their, you know, their business at risk of bankruptcy, but they also have to try and find the right line where, you know, users don't feel like they're being restricted in what they can do because, you know, reality is with Robinhood, the platform itself—mostly retail users are using it, obviously.

So generally speaking, you wouldn't expect people to be trading millions of dollars on Robinhood at once. Usually for most users, I would imagine it's like perhaps just to say, for example, it's like a maximum—most users, there's a maximum of ten thousand dollars that they've put into their trading accounts.

So for Robinhood, if you can set that limit to trading at, you know, ten thousand dollars for, you know, GME stock, for example, then, you know, 99.9% of your, you know, your users aren't going to feel that limit, and that's really important. That's the line that they're going to have to find.

So the user experience is not limited, and people don't feel like they're limited, when in reality, there is always some limit.

Anyway, that was pretty long for me. Let's get back into the action.

Elon: All right, well, I guess people really just want to know, you know, if you had no choice, then you had no choice, uh, gun for that situation. Um, and you know, then that's understandable, uh, but then whoever put that gun to your head should, you know, be willing to answer to the public.

Vlad: Yeah, listen, and, uh, you know, I know there's processes. This is unprecedented times, and to be fair to those guys, they've been reasonable. So, um, we are—I think the one thing that is maybe not clear to people is Robinhood is a participant in the financial system. Um, so we have to work with all of these counterparties.

So we do get a lot of questions about, you know, why do you work with market makers? Why do you work with clearing houses? Uh, vertically integrating and getting— I mean, it's hard enough to build an introducing and a clearing broker-dealer, not too many people have done that.

But the financial system that allows customers to trade shares, um, is sort of a complex web of multiple parties, and, um, you know, it's hard. Everyone says it could be better, it could be improved. Um, it's—it’s just the necessity of trading equities in the US that you have to do all these things.

Elon: I mean, to what degree are you beholden to Citadel? I mean, like, basically, if Citadel's unhappy, then what happens?

Vlad: Yeah, so, you know, there was a rumor that, um, Citadel, uh, or other market makers kind of pressured us into doing this, and now that's just false, right? Um, market makers execute our trades; they execute trades of every broker-dealer.

Um, you know, this was a clearing house—this was a clearing house decision, and it was just based on the capital requirements. So, um, from our perspective, you know, Citadel and other market makers weren't involved in that.

Elon: So, that's the meat right there. That's your job now is to go back over that little bit about Citadel and you come to your own conclusion as to whether you think Vlad is telling the truth because for those that don't know the backstory, so Citadel is a hedge fund that was short GameStop, and they also are big investors in Melvin Capital.

In fact, they're one of the two entities that just bailed out Melvin Capital to the tune of like 2.75 billion dollars, I think it was. So they have an interest; their investments—they have an interest in making sure that GameStop stock doesn't go through the roof because otherwise, the shorts get squeezed, and it's just a terrible situation for them.

Now, here's the thing: Citadel is a hedge fund that buys order flow from Robinhood. So Citadel provides revenue to Robinhood. So, it is rumored—and I put that in bold and underlined—it is rumored that Citadel has flexed their muscle or, you know, put Robinhood under pressure to not allow people to buy GameStop stock because by buying GameStop stock, that spikes the share price up, and people that are short lose even more money. That would be Citadel and Melvin Capitals.

So that is a rumor that's been floating around. So your job, I think, is now to listen to this section of this talk about Citadel and come to your own conclusion of whether you think Vlad is actually telling the truth.

I, before today, I'll be honest, I thought that he was not telling the truth. Having heard him explain it in much more detail in literally this interview by Elon Musk, um, I actually think that they're—I actually, I'm starting to believe that story that Vlad tells a little bit more, but I'd be really interested to hear your opinions on it.

Definitely leave your opinion down in the comment section below. What do you think? Do you think Vlad's telling the truth, or do you think he's telling little fibs here and there? Let me know.

Anyway, back to it.

Elon: But wouldn't they have a strong say in who got put in charge of that organization since it's an industry consortium, not a government consortium or not a government regulatory agency?

Vlad: Um, I don't have any reason to believe that. I think that's just like, you know, 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?

Elon: Okay, all right.

Vlad: Um, well, I guess so. We'll see what happens with future actions.

Elon: Um, hopefully that works out for you!

Vlad: Insecure and at least a little bit entertaining, are you not entertained?

So there you go, that is the situation. And as I was saying before, let me know what you think. Do you think that Vlad and Robinhood are actually telling the whole truth and nothing but the truth, or do you think there's some little half-truths maybe blended into the mix?

I'd be interested to hear what you think the truth behind the situation with Citadel is. Vlad was obviously very quick to shoot down that idea and to say, "Nah, they're just rumors. It's just straight-up false."

What do you think? Let me know down in the comment section below. It is going to be some time before we actually know the full truth behind this situation, but, yeah, I'd also be interested to hear your thoughts on what you think about the explanation behind having to limit the trading of GameStop because of the various clearinghouse deposit requirements.

Let me know that stuff down in the comment section below, and give this video a thumbs up if you thought that Elon Musk did actually a really good job at getting information out of Vlad. He got much, much more information out of Vlad than any media outlet has done over the past few days, and I think the reason behind that is that the media companies—they want to try and, you know, they want to try and expose, right?

So they almost come into the interview as an attack on Vlad, whereas I think Elon, um, and I agree, I watched Stephen's video from Solving the Money Problem. He brought up this topic as well at the end of his video where he was saying that Elon really came at that interview. Yes, he asked the hard questions, but he came at it in kind of a joking, kind of informal way, which I think actually really helped get more information out of Vlad.

And by the way, if you haven't watched Stephen's video, then definitely go over to his channel and watch it. I'm going to leave it linked up top over here. I think it was over here, I can't remember. It's coming up on the screen right now. Go and check out his video if you haven't done so already.

Um, but that is my take. That is my opinion. So let me know what you think down in the comment section below. Leave a like on the video if you did enjoy it, or if you found it useful. Check out Profitful down in the description below if you're interested in how I go about my investing, but that is it from me for today, guys. Thank you very much for watching, and I'll see you guys in the next video.

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