‘The people demand an answer, and they want to know the truth.’

That was Elon Musk, the chief executive officer of electric-car maker Tesla
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as he lobbed questions at the co-founder and chief executive officer of stock trading app Robinhood, Vladimir Tenev, on Clubhouse, the app for casual-drop-in live audio conversations, late on Sunday.

Robinhood has triggered criticism and even lawsuits among users after it restricted trading in a number of highly volatile and heavily shorted stocks last week, such as videogames retailer GameStop
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and cinema-theater chain AMC Entertainment
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Robinhood adjusted its list of restricted stocks from 50 to eight on Sunday, with those two high-profile stocks among them.

Tenev, jokingly dubbed “Vlad the Stock Impaler” by Musk — with the notorious Vlad the Impaler having reigned in present-day Romania, which neighbors the country of Tenev’s birth, Bulgaria — launched into a lengthy response at the tail end of the Clubhouse interview that busted user limits, prompting various live streams on YouTube and elsewhere.

“Basically Wednesday of last week we just had unprecedented volume, unprecedented load on the system. A lot of these, you know, so-called meme stocks were, you know, going viral on social media, and people were joining Robinhood, and there was a lot of net buy activity on them,” said Tenev, adding that the app had hit No. 1 on Apple’s
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iOS App Store and nearing that on Google’s
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Play store.

He said that while he was asleep, at 3:30 a.m. Pacific time last Thursday, Robinhood’s operations team got a file from the National Securities Clearing Corp. (NSCC).

“We have to put up money to the NSCC based on some factors including things like the volatility of the trading activity into certain securities. And this is the equities business so it’s based on stock trading and not options trading or anything else,” he said.

“So they give us a file with the deposit, and the request was around $3 billion, which is, you know, about an order of magnitude more than what it typically is,” said Tenev.

Musk asked how that was calculated and commented that it seemed “weird” that you get a “$3 billion demand, you know, at 3:30 a.m. in the morning, just suddenly out of nowhere.”

“Robinhood up until that point has raised around $2 billion in total venture capital, up until now. So it’s a big number, like $3 billion is a large number, right?” responded Tenev, who added that Robinhood doesn’t have the full context concerning what was going on at the NSCC to make those calculations.

“I wouldn’t impute shadiness to it or anything like that, and actually you know the NSCC was reasonable … they worked with us to actually lower it. So it was unprecedented activity,” said Tenev. He said an eventual conversation with “higher-ups” at the NSCC led to that $3 billion number being dropped to $1.4 billion — still, he said, a “high number.”

He said marking the most volatile stocks “positioning closing only” was proposed, and the NSCC responded by saying the deposit was $700 million, which Robinhood paid. Tenev said that explains why some positions had to be marked “closing only,” even in the knowledge it wasn’t a great outcome for customers.

“Part of what’s been really difficult is Robinhood stands for democratizing access for stocks, but we had no choice in this case,” he said.

Tenev also explained why it restricted buying and not selling. “The fact of the matter is, people get really pissed off if they’re holding stocks and they want to sell and they can’t. So that’s categorically worse,” he said, adding that he believes lots of other brokers were in the same situation.

“Basically, what people are wondering is, did you sell your clients down the river?” Musk asked Tenev, who said Robinhood has to “comply with requirements,” as do other financial institutions.

Tenev said the team raised over a billion dollars in capital, so that when markets open on Monday, it can relax the most stringent trading limits. But he told Musk and the audience that there will always be some “theoretical limits.”

Check out MarketWatch’s new data page: The most heavily shorted U.S. stocks

“I think the question is, will the limits be high enough to the point where, they won’t impact 99.9-plus percent of customers? So if someone were to deposit $100 billion and decide to trade in one stock that wouldn’t be possible,” said Tenev.

Shares of GameStop shares were last down 20% on Monday, and AMC rose 8%, though silver futures
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seemed to be stealing the spotlight, up 7% amid fresh interest from online traders. GameStop shares have gained more than 1,200% just since 2021 began, and AMC has jumped over 500% amid the retail-trader frenzy.

Read: Miners surge as silver futures jump to eight-year high on retail interest



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