E22: Robinhood CEO Vlad Tenev breaks down the GameStop situation

now wait um vlad you have to turn your camera off and then i'm going to do my little bit where the bestie guesting door knocks oh no jason no that's not silly this is silly here we go i can do it it's very easy for me don't worry about it don't worry about these guys don't want to do it they don't like my they don't like my bets three two let your winners ride rain man david source it to the fans hey everybody hey everybody welcome to another episode of the all in podcast with us again the queen of quinoa himself david friedberg the rain man definitely counting cards yeah burn baby david sacks is with us chamoth polly hopper tia

the dictator by the way and by the way go ahead jkl i'm j cow aka baby seal j cal could you take longer with the intros i mean this is like this is like your one moment to shine torture i know i like to do a little branding here i'm branding you guys as characters on the show i do want to i do want to give a big shout out and congratulations for david freeburg uh wedding his beak in a big way the story by the way we should actually have uh founder uh crazy founder stories and we should have friedberg tell the story of metro mile but it closed its uh spat transaction and went public and

it's doing great and uh congratulations thank you thanks guys well golf club thanks for the support thank you thank you very nice and uh joining us this week as our second bestie guestie after a triumphant performance by draymond green on the last all-in podcast is vlad tenniv who is the co-founder and ceo of a new startup we wanted to introduce everybody to it's called robinhood flat tell everybody what is robinhood and what's the mission of this new startup you've you've got thank you for for having me uh having me here hanging with you guys robin hood's mission is to democratize finance for all it's somewhat new we've been around for a little

bit over five years and we have a mobile app and a website that allows customers to uh invest in stocks options crypto currencies we offer a debit card and a high yield savings product as well um commission free and with no account minimums vlad i think you've done an amazing job building this company and you guys have done an amazing job uh democratizing access to uh to to the ability to trade can we fast let's fast forward to to the issue that i mean this we discussed i guess a few pods ago because um there was intense interest in this i think it's

our highest rated pot ever was discussing the game stop issue so you had these these traders from wall street bets these redditors who like you said they perceive themselves as the heirs to occupy wall street they're they're trading for profit also for revenge and um and then you know you guys i guess get a call in the middle of the night from the clearinghouse and you have to freeze the buy side of the trade the next day i guess let's fast forward to that because that was the thing that you know got everybody up in arms could you ex i guess talk to us about kind of what happened and i'm sure you didn't want to have to freeze trading right

but you were being compelled by this clearinghouse can you kind of explain what they told you and why you had to do it and and and why not just ask them to give you the order in writing so you can post on your website so everybody would know you didn't have a choice could is that something you could have done um well i think the challenge was that uh no doubt we could have communicated this a little bit better to customers right by the time by the time we restricted these securities to pco and it was 13 securities that we limited to sell only that process is actually operationalized within robinhood so it's uh we do

it from time to time under various circumstances like corporate actions so when something has a reverse stock split or something like that we can pco it for a little bit so there's a button and a dashboard that you know you can click and automated emails get sent out so it's a it's an operational process that i think in hindsight we probably should have exceptionalized to to make it to make it clearer why we were doing this just given all the swirl around all these meme stocks online um but by the as soon as those emails went out the conspiracy theories immediately started uh started coming so my phone was blowing up with

you know how could you do this how could you be on the side of the hedge funds and of course we're not on the side of the hedge funds i mean we're we're building products for our customers and we just had to do what we did to meet our deposit requirements because if we didn't do that we would be in violation and the consequences of that could have been much much worse than simply halting buying in the 13 stocks i think that's where you know when you were on cnbc with sorkin people either thought you were obfuscating or you were lying um you know and part of it is

sort of the the guts of your business is that at some point as well you guys decided to self-clear right and then going into self-clearing you become liable for every single trade that happens on your platform um like if you look back on those two audience what self-clearing means it means that you know typically you can work with a wholesaler to offload the risk so vlad acts as a transaction layer and as a ui and somebody else is responsible at some point these guys for economic reasons decided to take that responsibility on themselves but when you

do that you take on the full-fledged liability of the value of every single trade on behalf of your customers yeah i would think about it i would explain it as there's like pre-trade right then the trade and then post-trade so robin hood obviously does pre-trade with uh that's the app and what's called the introducing broker dealer our market makers do the trade so we route it to you know all the firms like citadel execution services two sigma and then robinhood securities does the post trade the clearance and settlement so we manage the exchange of cash and stocks

that happens on t plus two so two days after after the trade is made so what was not i mean if you had to give that answer again when sorkin said you have a liquidity issue was the answer yes we have a liquidity issue and here's why or is it still the same answer it was then so i i stand by what i said and i'll explain it and thank you by the way for giving me a chance to explain it um first of all restricting securities restricting the buying of securities is something that every pretty much every broker did to some degree during this week right so

when you say the l word in financial services it reminds you of lehman brothers where you literally are not able to operate your business we met all of our deposit requirements the new capital that we raised the 3.4 billion wasn't to meet our our ongoing deposit requirements we had met them and in order to relax them and eventually unrestrict them we needed to raise some more capital and eventually have uh more cushion so that if we keep seeing the type of growth that we kept seeing we didn't have to impose position limits again so i stand by what i said i think if you describe that

as you know the l word every pretty much every broker would have had that issue and i think at that point the word kind of loses its meaning and the gotcha factor that uh the journalists are trying to to get out of it do you think that um the the risk in the business went up when you decided to self-clear or would this risk have been the same if you work through a wholesaler well i think a lot of the um a lot of the other brokers who relied on clearing firms had the same issue right um you know there's there's firms like apex clearing uh which has introducing brokers uh

cash app for example clears through a third party as well and they they all had this issue and of course um their response was um they kind of threw their clearing firm under the bus right so obviously we're not going to do that because our clearing firm is robin hood securities um but i think understanding the space a little bit better since robin hood securities is you know a subsidiary of of my company um i realized these clearing firms had to do what what they did like there's no it's not negotiable uh to meet your deposit requirements of course we can ask what

can we do are these deposit requirements sensical what can we do to drive change in the system and i think that's my what's that who sets those requirements that's the clearinghouse right is that the dtcc yeah it's the the dtcc and a lot of this stuff is actually spelled out in dodd-frank so if you look at dodd-frank uh you'll see descriptions of the var charge and the various special charges there um but i do think um one thing that i'm very excited about is you know not going beyond just talking about our problems right we can i've talked about our problems a lot but

talking about solutions and how we can create a better financial system in the future and i really think if you if you understand the underbelly of what t plus two settlement is you immediately ask yourself why aren't we settling trades in real time and i wrote a post on that i had a tweet storm i'd also say you know some of the feedback that i've gotten is you know here's vlad from robin hood telling us about you know trying to change t plus two so that he can meet he can lower his deposit requirements i think there's lots of other systemic issues that fall out of that

in particular right now you can short sell more a stock than the shares that are outstanding right so you know some of these stocks had 140 short interest right so more more shares were shorted than actually outstanding and i just think that's pathological and it stems from the fact that you know these shares are tracked on pieces of paper so they're basically not tracked and someone can you you can i can lend you my shares you can short them the person that's buying them from you can lend them again and you can do that multiple times and you end up with this

situation that could destabilize the financial markets right so what okay so t plus moving from t plus two to t plus zero that's one issue um where do you think uh margin that's what i was gonna ask where where is your margin what's your what's your thoughts on margin yeah well so margin wasn't involved in this particular situation in fact there was an escalation path uh not a lot of people noticed until thursday but pretty much all the brokers including robin hood were ratcheting up the margin requirements for for all these securities um until they got to a hundred percent

so by the beginning of the week they were pretty much all at a hundred percent which means you can't use margin to buy them you have to you have to have them a hundred percent covered um so do you guys have a more specific question on marketing i meant more like i meant more like so for example i think it's true but you tell me if this is not true you guys paid like a 65 million dollar fine to the sec for gamifying robin hood right and it's not not exactly true but go ahead okay do you want to do you want to just tell us what the truth is yeah well so the the fine wasn't for gamifying robin hood it was for payment for order flow

and business model related uh related things um the gamification one is the massachusetts securities securities one which is a separate thing and look on the sec thing um we're a fast growing company we obviously scaled a lot between the period in question um obviously uh the the securities and exchange commission uh felt like we could have done things better and and i own that i think that we're fine being held to higher standards we have to hold ourselves to higher standards um and what we can do is just do some of the things we've done staff up our compliance team staff up our legal team we brought on a new chief legal officer who was a former sec

commissioner two new chief compliance officers for robin hood securities and financial who had decades of experience and the level to which we're investing in compliance i mean the goal is to build the finest legal and compliance team that the financial industry has seen let me tie it back flat to what to what we were talking about before so do you think that it's okay if we're trying to build a generation of investors to give them access to margin as easily as some apps including robinhood does and then separately allows them to trade

highly transactional high vol instruments like options on top of that with margin why do you think about that just as a general philosophy forget business building for a second well and then also can you say what the margin you allow is for a new account because i don't think people understand what that is maybe a little definition there well there's a couple of things i want to clear up number one you can't trade options on margin so options are all fully paid for right um margin is not suitable for everyone um i'll admit that you have to understand it and you

also have to be a robin hood gold customer which means you have to sign up and pay five dollars a month most brokers don't gate margin behind a premium offering so we're already a little bit more restrictive on that front you have to have 2 000 dollars in your account before you can borrow and in december we did lower our margin rates to 2.5 which is very a very competitive low rate but let me tell you a use case for margin that i actually think is quite powerful so obviously one use case is kind of the typical one of buying more stock with your money but if you build a

large portfolio you can actually use margin as a line of credit and we offer this feature with our debit card you can turn on what's called margin spending and what that means is if you invest in your portfolio you can borrow collateralized by your portfolio at a very low rate which is one tenth of what you would borrow through a credit card so i actually think it's a it's a powerful tool certainly customers have to understand it and be suitable for it but um it unlocks the type of borrowing not just for buying stocks but for for for meeting your daily purchasing needs

that um i think is is very useful if somebody puts two thousand dollars in vlad can they trade four thousand dollars six thousand dollars eight thousand dollars and does it matter what equities they're holding how does it work yeah the the actual calculations are um uh there's no blanket formula i can give you because it does depend on the securities that you buy so the example i gave was for example gme and some of these other meme stocks we raised the requirement on those to a hundred percent so those have to be fully paid for other stocks have an initial requirement

as low as 25 if it's one that you know is deemed by the operational staff and our processes as not being super volatile and it can it can go in between so 25 percent initial requirement all the way up to so you can trade four times your money if it's a really blue chip secure stock um more or less yeah with some nuance around that you know time and again vlad there's studies that show that it's really difficult to beat the market and make money you know trading in an efficient market um like the market we have for stocks or options or what have you there's a lot of players

there's a lot of liquidities a lot of people with information it's um you know these great fund managers over time underperform just the s p right and um you know i i think i mentioned this when we had that pod a few ago that i was involved in a forex trading company and 60 60 of accounts eventually ran out of money can you share with us what percent of robin hood accounts run out of money and and you know do we mask generally and i'm not accusing robin hood uh specifically of this but do we mask the idea of investing in businesses um as you know a way of

kind of highlight of a way of hiding that people are really just using this to trade in and out and try and make money in the short term and ultimately the majority of them end up losing most of their money because the fees and the spread and the margin or whatever it is that that kind of adds up you know wipes out the account that's what i saw this forex company i was involved in can you share with us you know in a very candid way like how many accounts do you eventually go bankrupt at robin hood and how much of that do you really see first of all i'd say forex is a

little bit different because the leverage you get in forex is like orders of magnitude yeah i'll admit to that it was like 10 to 50 to one leverage so you're totally right yes exactly so um i i do think the businesses are a little bit different most of our customers don't use leverage most of our customers aren't active traders or trading options and if you look at some of the features that we've rolled out the the theme of this year has been how do you turn a first-time investor into a long-term investor so fractional shares recurring investments

drip these tools allow someone to create a diversified portfolio of individual stocks and recurringly buy into them over time so is that the majority of users today or the minority you know are you how many accounts do you see kind of cycle down to zero over what period of time i think a very small percentage of accounts uh have that have that property i mean i think if you look back in 2020 we had a huge increase in growth and interest in investing right at the bottom of the market crash in march right and uh i think people have taken advantage of that and uh

our customers in general have benefited from the recovery very very significantly so i i wouldn't i would reject the the means that you know robin hood customers are active traders that are just you know churning their accounts and and losing all their money that's that's just simply not what we're seeing i know sax has a question but one question i had with the conspiracy there is that i would just love to hear like a yes no to did citadel call you and say stop this madness because they had exposure through one of their hedge funds with gamestop and did sequoia call

you and say hey stop this madness or just refresh it and you forgot you forgot the white house one no no this was a formulaic decision uh made by robin hood securities dude so citadel didn't call and ask nikoi didn't call and ask did the sec call you and say this has to stop no but the clearinghouse did right yeah well they called and they said here are the deposit requirements and we worked with them to lower the risk so that we could meet the deposit requirement got it and and so just let me pick up on that so at the same time that was happening um and

i i know this wasn't robin hood that's not your company but but discord and reddit were receiving reports uh that the wall street bets forum was engaged in hate speech and there was an organized effort to get them censored and taken down and discord basically fell for it and took down wall street bets read it yeah to their credit did not do you have a take on you know what happened there and uh i mean i assume you you don't think wall street best was engaged in hate speech well um so that happened wednesday i believe um and yeah we were watching it it was first

it was like oh wow discord discord shut down and then i think wall street bets went dark on reddit for a little bit as well but i'm not quite sure of the the reasoning behind that um look i i mean i disavow hate speech misinformation um i i'm not you know judging which of the posts are hate speech or or not i think that's the social media companies that that that should take a look at that the mods i think the mods closed down reddit for like uh a little bit and then turned it back on yeah yeah i mean a lot of these things get triggered if 10 people

reported at the same time it just it sets off well it seems it seems certainly yeah it seems to me that and certainly this is if you want to call it a conspiracy theory it seemed like you had this wall street bets group they were on one side of the trade you had these wall street hedge funds on the other side of the trade and there was an effort to weaponize the speech rules of reddit and discord to cut off the lines of communication of wall street bets because the only way that wall street bets as a decentralized group of millions of traders can can stick together and compete with

these hedge funds is if they can communicate with each other by these services and so um you know it seems like there was an organized effort to try and take them down at the exact same time that um that they were frozen out of the buy side of the trade vlad do you think that there should be more transparency in the financial markets meaning everything from payment for order flow how much money companies make lending out their stock which company is short which stock which company is long which stock on a more frequent basis how much margin people are running do you think like we should move to perfect transparency in the

financial markets i i do think that there should be more transparency and i'm glad you you brought up payment for order flow because it's something that i'm trying to take on you guys might have noticed i i plug i published a post on payment for order flow i started a tweet storm that um is meant to just start the conversation around it i want to understand kind of the misconceptions and the theories and and knock them out one by one and i think that'll lead to some positive discourse around it and there certainly might be things that will have to change um and i think the the first

step is actually engaging in the conversation and kind of connecting the people that understand the details with the people that have issues with it um and i don't think that's been happening enough so for sure but what about stuff like margin shorting you know uh short like do you think that we should move all of this stuff so that it's just out out front for everybody to see well i think i think if we if we migrate to a better settlement infrastructure and move to real time settlement you get a lot of that stuff for free right so you do get um and i know a lot of the crypto people

came out after i published my post and said you know crypto solves this you could just put it on on a blockchain and everyone could see publicly what's going on and which share which shares are are being being held short where they are who's owning them um so i think i would be in favor of of uh more transparency i'm not sure at what point uh there's sort of like negative secondary effects i haven't kind of unspun the thread fully but i think we can we can keep taking it one step at a time and and see uh more transparency generally i think is much better hey vlad when you guys um go

public you've talked about having a listing at some point here soon why would you not have all of your shares sold in the ipo through robinhood to your retail users why would you sell any shares to institutional investors wow good questions it is a an interesting question it's it's one that i probably that that's probably the one i can't give too much detail on hopefully you guys understand my recommendation if you're going to democratize access do it all the way [ __ ] the hedge funds and the big guys if that's the if that's the point and you give retail

equal access you know in all these transactions as you know institutions get get all the access and the reasons have your entire listing done through retail it would be a it would be a game-changing transaction yeah so i mean a lot of this it's really interesting that this turned into uh you know individuals versus hedge funds because i i think that's a really powerful story but you also have large institutions like fidelity that are holders of all these stocks right you have individuals on a lot of platforms that were short selling them as well not robin hood because robin

hood actually doesn't doesn't allow short selling by individuals but a lot of the other brokers do and you have you had statistics um statistics coming out that actually show retail versus institutional and you know there was some counter-intuitive results so i i think if you actually look deep into the plumbing the story of you know long individuals short institutions uh on opposite sides i think uh there's a little bit more nuance to it than that flat um if you had to do it over or actually forget about the past think about the future

um what do you change inside the company well let's see um i think the 3.4 billion in extra capital certainly helps um i think i'm very proud of the transition that we made between thursday and friday so thursday we had the blunt hammer of pco in these stocks right which obviously was not ideal by friday we had moved to a much more sophisticated system where intraday we adjust the position limits in uh it was up to 50 stocks and we published that on our website so that that gave us a lot more granular control over it and is a better system

and we're going to only improve that and kind of take the learnings to other parts of the business so i think um the great thing about you know these sorts of crises is um sort of months and and years worth of work get compressed and people are just like super aligned on the key priorities we need to do to to move the business forward and we saw that and then the third thing i'd put is just maybe you guys have seen um you know i i feel like i've evolved as the chief executive and as a leader i didn't used to be on social media telling our story very much but um i'm out there

trying to encourage more transparency i would say much better today than with elon much better with elon than sorkin so progress has been made i have a just a basic question i know we got to wrap soon when things get superheated and you have this viral momentum where i don't know how many people tried to sign up on that day but maybe you could give us an idea on that wednesday or thursday was it you know five figures six figures or seven figures worth of new accounts why not throttle the new accounts and say hey we're you're on the wait list we on board 10 000 people a day

your day is going to be next thursday so that you don't get caught in this you know everybody uses the fact that it's friction free to sign up to do an emotional bat in a you know let's call it mob behavior right like this turned into a mob and i guess some people believe it's a good mob to go up against the hedge funds uh but it could have equally been something you know something more deranged and even more edge case is going to happen so when that does happen and a million or 10 million people sign up can't you just pause it and say we're not going to do

any new accounts today we've reached our limit we actually did do that so we have been pausing new account approvals off and on uh depending on on the load and um you know customers have been experiencing in some cases short delays uh with account approvals obviously not an ideal solution from our standpoint but you know if if we have to do that we will do it and we have done it how many people signed up on that wednesday like just ballpark like was it hundreds of thousands millions jason are we are we running an ad for robin hood stop no i'm just kidding none of us

cares none of us cares last question hit me hey listen um if you had to pick two different ceo's reactions to how you dealt with it let's say tim cook on one end of the spectrum and zuck on the other how do you think they would score what robin hood did and what they are doing tim cook zuckerberg you know i'm not sure um i think that um i think i'm proud of of of how the firm navigated this i think uh obviously there's ways to improve upon it um i think that you know any time you get a phone call in the middle of the night saying you have to put up three

billion dollars all sorts of things run through your head right i've had it happen i know that was just money from the cage for poker i got a lot of people reaching out to me um which was amazing if you had to do it over again why not just post a blog that morning saying hey we got a call in the middle of the night we have to do this is that is is that the thing you do over again no because he'd be throwing his own company under the bus he'd have to say robinhood securities is telling robin hood the broker to post this money because robinhood securities is being told by

their downstream clearing so it's like you're you're in you're in it you're in a different way you're saying it now so better to say it uh at the time it all happened and it would have defused the whole crisis right well first of all i'm not throwing anyone under the bus had we did the team did what they had to do um i don't think there was any way to navigate that differently i think the automated emails that went out to customers saying uh your stocks are you're restricted from buying these stocks probably could have been handled a little bit better we probably could have

offered more detail into that with the foresight that maybe customers would think that a hedge fund forced us to do it or something like that so certainly um certainly there's areas we can improve upon across the board and one an early investor called me throughout this and said hey chin up you know navigating a crisis successfully unlocks the next level of value creation for the company and um i've had that in mind uh the entire time and i'm just doing what i can to to make that future a reality both for robinhood and for the financial system i think that this could lead to

some really positive change industry-wide yeah and i'll just just one last softball here this is not about what happened uh that with gamestop uh we've had a debate on this pod it got kind of heated between uh chamath and jason about the nature of jason's investment in robin hood uh can you tell us can you tell us your side of the story of what happened at antonio's nut house okay and how much how much stumbling was involved precisely okay i'm i'm very glad you brought this up because i've been meaning to call jason out on it he has this great story of uh how you know we met at antonio's

nut house and he actually wrote a check i think the the real story is that um on robinhood launch day um which was a saturday and um we violated every rule of pr and marketing by launching inadvertently on a saturday i got a reach out from uh from launch who who was one of the first uh one of the first outlets to cover our launch on saturday and uh jason's uh jason's friend uh simon ex-employee who uh ended up running social for us for a bit um was a big fan of robin hood so um he joined us as kind of our first social person he introduced me to jason i met jason at sequoia

jason where you agreed to invest and then six months later we met at antonio's nut house when we were raising our series a and i think you uh you gave me the advice to to go with index ventures no i know i said sequoia all the way don't get me in trouble i promise michael moritz dougliotti whoever's watching i totally was sick sequoia was great they they unfortunately passed on our series a as as did a lot of other funds wow all right listen uh thanks for coming on the pod uh we really appreciate you taking the time and continued success and um but i'm really glad we didn't give you a job offer back in 2008 sounds

like uh it was the right move for you funny how things worked out yeah well apparently i interviewed him in 2008 for a job and you didn't get the job it was you and alex alex michalka was my my main interviewer but um it's funny i graduated with a math degree right i was i was doing pure math which in 2008 made me unemployable we were the only people hiring at that point yeah yeah you were the only people that would interview me yeah everyone else was like where's your computer science degree can you code so i ended up going to math grad school which was one of the few options that i had and ended up dropping out and

and here i am so funny how things work well good for you all right continued success and thanks for coming on the pod we'll see you soon thanks thanks for having me vlad's back wait vlad's back sorry i i i actually i thought i was supposed to leave i didn't know if you guys know you could stay i was saying you can stay i was saying after a year of jason asking us to run ads he's found a way of trying to make this a 45-minute infomercial for robin absolutely i listen i'm ride or die glad you know that i'm right or down my founder we're just trying to

keep uh keep everything up and let all the people safely and who have been banging on our door how how much have you been sleeping vlad have you been able to sleep i mean this gotta be exhausting uh oh my god really can you ask him something like at least semi semi-fucking challenging honestly that's not why that's why you guys are here if you're walking down the road and a robin hood customer this is a tough one i'm sorry you thought you were over this but you logged yourself back in so and a robin hood customer that lost all this money when they got locked out of

trading that day comes up to you and screams and cries i lost all my money what do you say to him you know i got completely destroyed my life savings is wiped out i mean i've read a bunch of these comments on different boards and so on like what do you say because i i know that's a tough one to swallow and i know that you know we've heard the the story around what happened but but what do you say to that person well first of all i'd be very very empathetic i'd probably want to understand how someone could lose money um when they couldn't buy

a stock at the all-time high so i think the details around that i mean if you look back uh and obviously this had nothing to do with the decision right but thursday was the all-time high yeah yeah but that's but the reason for that is because the ability of wall street bets to continue the trade was was basically interrupted right they were they were engaged in a short squeeze against these big hedge funds and in order for this to keep driving the squeeze up and up and up they needed it basically to to be able to buy and then once they got frozen out of all the

online broker accounts not just you guys but all of them that was that that that broke the trade right maybe that's why that's what i call hypothetically but that's what they're so but that's what they were so upset about is because they got they got locked out of the buy side of the trade they weren't locked out of the sell side right they got locked out of the buy side and that allowed that the big hedge funds 24 hours to regroup and uh and cover the trade the price went down and that basically cracked the whole thing right well i'm not sure about the uh the exact details there on the on the hedge fund side or

what happened look what i can say is uh we're gonna do our best to uh make sure that we get better and we serve our customers uh whenever whenever they wanna buy stocks and we'll do that and we're going to get better and better every day and the truth is if you had had the money in the bank account to for dtcc to be compliant you would have been like you weren't trying i mean you're in the business of letting people without question yeah you make nothing if people stop trading you need people to trade the core of the business right yeah this wasn't you know a value judgment

or some kind of uh moral stance and we weren't pressured into doing it by anything other than our regulatory deposit requirements what do you think is the future of payment for order flow and revenue sharing on um sort of like the the ways in which like meaning how much do you think of that payment for order flow revenue should you share with customers yeah that's a good question i mean this is all highly regulated and uh it's it's become the industry standard business model right so i'm not sure we're we're excited to have a conversation

about it um i do think exchanges are here to stay market making is here to stay market making is a profitable enterprise and so some level of revenue share between the market maker and uh and the broker makes sense and uh it is regulated um so i'm not quite sure what if any changes need to come but hopefully this will be part of the conversation that that we can we can help create and uh and work through and i think part of the problem is just the opacity of it you know it's it's kind of like interchange does anyone know that interchange

is this sort of like hidden piece of revenue every time you transact with a debit card or a credit card it's it's sort of analogous in a way right well i think i think more people do just because the technology companies that have come around like you know stripe and others will eventually just try to take it to zero um and so if anything i think what the the business model or at least the business strategy of all these companies is when you find to your point these opaque pools of revenue the innovation is just to give consumers power by taking these costs to zero

if you vlad decided tomorrow to do um robinhood pro you know higher level than gold and charge 50 bucks a month for 50 trades and then five dollars each trade after that would solve anybody's misgivings about this right you could just offer both options well i think it's it's payment for order flow enabled commission free trading right it helps cover the costs of the business that that that leads to our ability to offer commission free trading and moreover it allows um smaller investors to participate so certainly i think that model would work but the the consequence would be smaller

investors would uh yeah right if the option is there it'd be like facebook saying we have an option for you to pay and not see ads and be tracked right it would just be great option what do you think is the difference between investing and trading and what do you think has to happen so that you know back to where you started if you want people to close the inequality gap how do you allow them to do it trading versus investing well i think the difference between trading and investing investing is a little bit more about accumulation so typically you're buying uh more stock and building up positions

over time um trading comes into play um i think when when you're selling right when you're selling sort of strategically and um you're doing it not driven by outside needs for them for the capital but more for uh for sort of like uh intrinsic needs um so i think the question is would we would we ever prevent people from selling ideally not i mean people have various needs that uh that they could have for getting out of positions and i think as a platform we have to allow for that awesome uh your pr people are literally gonna come freaking out breaking your glass in your house your pr person is literally running from hq

she's gonna start bagging on the back window you cannot be on this pod uh no great job vlad um and uh remember use the or code bestie and get your first free mob well thanks for having me gentlemen all right thanks thanks man great job take care thank you thank you thanks for answering our questions yeah thank you for coming you're going to log back in two minutes right yeah okay yeah come back for the chesaputen gavin newsom recall news your pr people will be delighted if you comment on that yeah are we gonna do a debrief the debrief from my opinion is that um i i think that they're half they have to really tighten two things one is

they need to make a decision how do they want to make money um because i think this is the third time these issues have come up it's probably not going to be the last and because there's going to be more market volatility not less and so you just got to decide how you want to make money because there is no amount of money that's possible if you're going to build a successful business and run into these margin constraints right you can't there's just no amount of money that you could have meaning if you look at the folks that didn't get called we're folks that have like schwab accounts why because schwab is investing and if you look at the folks

that did have these margin issues because robin hood wasn't the only one they're all the trading and and sort of like high frequency shops and so you know that's the decision and then it's back to what david said which is like once you make a decision you have to be able to tell people like this is what you want to stand for and you have to have the right internal controls and governance and so you know if he gets these things right maybe they can be on the other side of it otherwise they're just going to continually step on this stuff and i think that the

you know uh if folks lose enough money they're going to be pretty upset i think sounded to me like david uh freeberg you had a good point about offering the the robin hood consumer base the ability to buy the shares i think a hundred percent of it should go to the the retail investors he didn't say no and he kind of i kind of got the inclination that he was going to do that 100 he will not yeah this came out in the past where he said they were going to offer some of the ipo shares to robin hood customers and so that was a few months ago i i think i

said publicly on twitter why don't you offer all your shares to ipo customers like why take any of them directly i mean could he technically become a clearinghouse and ipo people but then would it be like a partnership in it yeah like why don't you just take um you know if fidelity wants to buy shares let them buy shares on the open market like all the retail customers are forced to do and then the fidelity argument is well we're buying 50 100 million blocks at a time so we don't want to have to be in the market doing that but the marginal cost of buying a single share versus the marginal

cost of buying a million shares is much much higher and you know that's that's the challenge with um you know with retail access in financial markets that robin hood has set out to solve as have many others and it would be a really powerful statement if they said you know what we're going to show the world that the market can all go direct and be efficient and actually make all of their ipo shares available and then you know what if the big block trade guys want to buy some go ahead and buy it from the retail guys in the open market or do 50 50. you know offer

everybody who's a robin hood shareholder i just think that they would if they could fill their demand their demand on their book for their ipo from retail do that and let anyone else let fidelity sign up for robinhood account and buy their share through robinhood you know like um the fact is the big block buyers always get a discount right they pay wholesale pricing in these markets um and that's also part of why it's so difficult for retail to actually find a footing um and so it would be a really powerful statement for them to kind of go all the way

sure i think it's almost certain they're going to give some of the shares available on the ipo to robin hood customer it's a great uh it's a great kind of uh you know publicity point but um but it would be really powerful if they shifted the whole the whole thing i mean years ago when i was at google we did the ipo i don't know if you guys remember this but it's the first time we try to do this dutch auction so the reverse pricing so anyone any individual any retailer and a retail customer and any institution could bid on google shares and then there was a clearing

price that was hidden everyone got their shares at the same time so there wasn't this order book that was built by going to the big guys that the banks all know and love like fidelity and hero and so on selling them big discounted shares it was it was it was a true market auction and the direct listing is the new model for this that totally democratizes access to the shares creates fair and transparent pricing for everyone and so you don't end up with these like discounted shares that pop 80 on day one okay saks what is your debrief on the vlad appearance so i think vlad did a pretty good job handling our our questions um answering answering some deflecting

some i think that i look i i think i i don't think vlad's a bad guy i think he's a good guy i think robin hood wanted to do the right thing i don't think they had any reason to want to freeze their own users out of their accounts i don't think they wanted to do what they did i think that there was a little bit of a blind spot there on his part in terms of understanding the consequences of that freeze out right because it did break the buy side of the trade for wall street bets and then that that basically allowed the hedge funds to recover and that was that moment

you know and so um that was that was a big deal i think the consequences of that decision were a big deal but it's a counter factual right we don't know we'll never know of course look it was it was that thursday where the short squeeze ended because wall street vets couldn't keep buying they couldn't keep engineering their side of the trade obviously that's why it cracked right and robinhood was a big part of that whole thing collapsing now it was going to collapse at some point there's no question that the air was going

to go out of the balloon right but would have gone to five or 600 is the question yeah but but but how much money the hedge funds were going to lose whether they're going to get busted out of the game for good and who is going to get left holding the bag those were all questions that got answered in a completely different way because robin hood did what it did now i i don't believe that they had a choice i think they did it because they were forced to do it um but it did have huge consequences i thought he did he's doing a better and better job explaining this highly technical

stuff and uh you know obviously if they can't talk about their ipo that does tell you certain things i don't have any inside information but he obviously there's thing what i get from this is there are things he can talk about and there are things he can't talk about there might be either things with the ipl or things with confidentiality between them and some of these parties like i have a feeling people are not allowed to talk about this dtcc and what goes on there because there might be i would have liked i that that was an area where i really wanted to hear

more details and get more clarity because i mean i believe look the order came down in the middle of the night from the dtcc right and so that's why i kept asking why wouldn't you just say to the dtcc talk about them okay that's what i'm reading into it and i don't think i think it might be one of these non-disclosures where you can't mention the non-disclosure which we've all maybe maybe but but but but see that was the heart of my question is if you're ordered by somebody in the middle of the night to take an action that is you know adversarial to your own users well

i would ask them for that in writing and post it on your website post it on your blog so to show that you don't have a choice i mean i believe that he didn't have a choice but why didn't he say that from the very beginning right i mean that's what caused all the problems for them yeah all right there you have folks everybody go to thesyndicate.com all in boys i love you i gotta go great job talk to you soon talk to you guys later love you guys love you bestie all right we'll see you all next time bye-bye and they've just gone crazy it's like this like sexual tension that they just need to release your feet oh