The Exchanges

Q Where do you see the JP Morgans and the MasterCards and Visas? How do they compete with an elegant product with hundreds of millions of users that just, you know, the product velocity that you have, the risk you're willing to take,

A Yeah, I mean, I think that, uh, if you, if you think about an incumbent, they have certain benefits. They're like very muscular from a regulatory standpoint, like they know how to deal with regulators. They've got global scale. They've got, you know, 1000 of millions of customers, lots of assets. But the disadvantage is that they're sometimes slow to adopt new technologies. They don't have the best engineering teams. They can't move very fast. And they, they can't hire the best talent, and so I think that we don't have those downsides. We have great talent. We move really quickly. We use the best technology. We haven't been super acquisitive historically, even though we're doing more, and that prevents us from being bogged down by these, like, massive integration things that take multiple years, um, and so it's a question of, Can we get the benefits of scale while also maintaining the nimbleness of a technology startup?

AI assessment note: “it's a question of, Can we get the benefits of scale while also maintaining”

Q Okay, do you want to, do you want to just tell us what the truth is?

A Yeah, well, so the, the fine wasn't for gamifying Robin Hood. It was for, um, Payment for order flow and business model related, uh, related things. Um, the gamification one is the, uh, Massachusetts, uh, securities, uh, 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 is a former SEC commissioner, two new chief compliance officers for Robinhood 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.

AI assessment note: “the fine wasn't for gamifying Robin Hood. It was for, um, Payment for order flow”

Q last softball here. This is not about what happened, uh, that, 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 Robinhood. Uh, can you tell us, can you tell us your side of the story of what happened at Antonio's nut house and how much, how much stumbling was involved precisely?

A Okay. I'm very glad you brought this up because I've been meaning to call Jason out on it. He has this great story. Story of, uh, how, you know, we met at Antonio's nut house and he wrote a check. I think the, the real story is that, uh, 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 to 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 ended up running social for us for a bit, um, was a big fan of Robinhood. 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 Nuthouse when we were raising our Series A, and I think you, uh, you gave me the advice to, to go with Index Ventures.

AI assessment note: “six months later, we met at Antonio's Nuthouse when we were raising our Series A”

Q 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.

A 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, I'll admit that you have to understand it. And you also have to be a Robinhood 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 2000 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, uh, 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 10th of what you would borrow through a credit card. So I, 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 a type of borrowing, uh, not just for buying stocks, but for, for, for meeti…

AI assessment note: “You have to have 2000 dollars in your account before you can borrow”

Q a new L-one called Tempo. Everybody's competing with everybody. Tell us the scope of where you think Robinhood goes in the next four or five years and what the financial landscape and infrastructure looks like. The Visas, the MasterCards, the JP Morgans, what roles do these companies play as you guys just become more and more ambitious and girthy and big and, you know, market cap and all that stuff?

A Yeah, I think the industry goes through periods of consolidation and then divergence. I think Robinhood has a unique advantage, which is that our customers put an increasing amount of their dollars into Robinhood. So what we're thinking about, and it became pretty clear to us, as soon as we rolled out our second product, we kind of saw what happened. Customers spent more time on Robinhood. The two products help each other. So, for example, with retirement, we noticed, you know, the big question was, well, if we launch retirement, is it going to cannibalize the core brokerage business? But what we saw was the opposite. If someone opens up a retirement account, they tend to actually increase the amount they put in their individual account. And we saw that again with the credit card. If they're a credit card primary user, top of wallet, they actually put more money into into Robinhood. So then that gets us to a future where we ask ourselves, can we be your comprehensive financial platform? Can you put your direct deposit into Robinhood? Can you put all of your money into Robinhood? Can you get to gold subscriber premium status as soon as possible? And then can we get all of your family members onto Robinhood as well and your kids? So yeah, I don't think anyone's really thinking about it from that angle, but I think that There's going to be over a 130 trillion that changes hands fr…

AI assessment note: “can we be your comprehensive financial platform? Can you put your direct deposit into Robinhood?”

Q 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 wasn't.

A 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, uh, restricting the buying of securities, uh, 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, ah, more cushion so that if we keep seeing the type of growth that we kept seeing, ah, 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 the gotcha factor that the journalists are trying to get out of it.

AI assessment note: “I stand by what I said, and I'll explain it.”

Q Vlad, 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?

A Well, let's see. Um, I think the 3.4 billion in extra capital certainly helps. Um, I think I'm, I'm very proud of the transition that we made between Thursday and Friday. So Thursday we had the blunt hammer of PCOing 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 gonna only improve that and kind of take the learnings to other parts of the business. Um, 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, 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.

AI assessment note: “improve that and kind of take the learnings to other parts of the business”

Q 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, how, 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?

A 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 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'll 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, I don't think that's been happening enough. So for sure.

AI assessment note: “I, I do think that there should be more transparency”

Q Who sets those requirements? That's the clearinghouse, right? Is that the DTCC?

A 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, 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, 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 Robinhood 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 stock than the shares that are outstanding, right? So, you know, some of these stocks had a 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 c…

AI assessment note: “Yeah, it's the, the DTCC, and a lot of this stuff is actually spelled”

Q But you're saying it now, so better to say it, ah, at the time it all happened, and it would have diffused the whole crisis, right?

A Well, first of all, I'm not throwing anyone under the bus. We 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, um, probably could have been handled a little bit better. We probably could have offered more detail into that, uh, with the foresight that maybe customers would think that a hedge fund, uh, forced us to do it or something like that. Um, so certainly, um, certainly there's areas we can improve upon across the board, and When 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.

AI assessment note: “I don't think there was any way to navigate that differently.”

Q 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 it on your website so everybody would know you didn't have a choice. Could, is that something you could have done?

A Um, well, I think the challenge was that, uh, no doubt we could have communicated this a little bit better to customers, right? Um, By the time, um, by the time we restricted these securities to PCO, and it was 13 securities that we, uh, limited to sell only, um, 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 in 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, 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 bu…

AI assessment note: “we just had to do what we did to meet our deposit requirements”

Q 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?

A 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, uh, you're doing it not driven by Outside needs for the, 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.

AI assessment note: “investing is a little bit more about accumulation. So typically you're buying”