Vlad Tenev, CEO and Co-Founder of Robinhood Markets, joins Yahoo Finance’s Akiko Fujita and Zack Guzman. He says, “what we’re seeing is really a new era of market dynamics, it started last year with pandemic and it's accelerated through the first month of 2021,” adding that the involvement of smaller investors was part of a “positive transformation” in trading.

Video Transcript

ALEXIS CHRISTOFOROUS: Shares of GameStop and AMC up about 60% today, the spike coming as Robinhood opens limited buyers of these stocks and others after the trading up restricted some transactions yesterday. Joining us now is Robinhood CEO. And for that, I'm going to turn things over to my colleagues Zack Guzman and Akiko Fujita, guys.

ZACK GUZMAN: Thanks, Alexis. Yeah, let's bring on Robinhood CEO Vlad Tenev, again. Vlad, thanks for coming back on with us. I know we chatted on Wednesday. And back then, you said Robinhood just works and that it makes investing accessible for all. But less than 24 hours after you said that, it quite literally was no longer accessible for customers to buy specific stocks here.

And then you guys come out and say you had to raise more than $1 billion in emergency funds. So what prompted that raise, and what changed in just those short 24 hours?

VLAD TENEV: Well, thanks, thanks for having me back, first of all. Yeah, we were-- I was here on your show recently talking about an op-ed. So 2021 certainly has been interesting so far. And what we're seeing is really a new era of market dynamics. It started last year with the pandemic. And it's accelerated through the first month of 2021.

And I think, stepping back, we view that increased access that has enabled everyday investors to access the market as a very positive transformation. I reflected on that in the op-ed that I was chatting with you about. And this year, especially this past week, there's been a massive continuation of incredible demand from retail investors.

So we stand with the people who are making their voices heard through the markets and showing the world that investing is for everyone, not just the wealthy and not just the institutions.

ZACK GUZMAN: I want to get specifically into what went wrong though here, though. Because we were chatting with the CEO of one of your competitors, another free trading platform, Webull. Anthony Denier joined us to explain some of the volatility issues. And he did it pretty well. But it sounds like there is one key specific difference between them, when they were able to restore trading before you guys, and what happened with Robinhood.

So I just want to play what he told us and then get a question to you on the other side. Take a listen.

ANTHONY DENIER: In reality, what's going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. And because of the volatility of these stocks, DTC has made the cost of the collateral for the two-day holding period extremely expensive. And we just can't afford-- well, not Webull, we're not a clearing firm. But our clearing firm simply cannot afford the cost.

ZACK GUZMAN: So they use an outside clearinghouse called Apex. And as I understand it, Robinhood moved to cut ties with Apex a couple of years ago, instead opting to build your guys' own internal technology, your own clearing house, just like we've seen from TD Ameritrade and Charles Schwab in the past. But they didn't cut-- TD Ameritrade and Charles Schwab didn't cut off customers from buying stocks like GameStop or AMC.

And I get that we're in a period of added volatility. But wouldn't you have seen that volatility coming before all this, since we were talking about GameStop on Monday? We had you on on Wednesday. And then also, if it's a decision, if you made that decision to internalize the clearinghouse operations to increase profits or add to revenue here, I assume your customers would have a right then to be angry if you did that and didn't stopgap enough protections against this volatility. So what happened there?

VLAD TENEV: I think-- look, I think Anthony gave a great technical explanation of some of the details behind settlement and the DTCC. I think putting this in perspective, Robinhood today has already started allowing limited buys of these equities that yesterday went to position close only. They went to position close only, which means customers that held them weren't restricted from selling them, and we have thousands of other securities that are available on the platform.

And brokerages and other financial institutions do this all the time. They've been doing this throughout the week. And it's just part of day-to-day normal operations. Now, sure, Robinhood gets a lot of attention for it. But this is just a standard part of practices in the brokerage industry and the broader financial industry.

AKIKO FUJITA: Vlad, I think there's a broader question here about whether Robinhood is equipped to handle this kind of surge. And you talked about it on Wednesday that there is, in fact, a movement that's happening. The speed with which these trades happen, the skill with which they happen, it seems to have shifted because of social media, because of the information that's online.

And yet, with that, there are questions about the size of your company, as well as your balance sheet, your ability to handle these market dynamics. How confident are you that this is not going to happen again?

VLAD TENEV: We're very confident about our future. And that's really borne from the fact that everyday people are taking control of their financial futures in ways that people haven't before. And that's something to celebrate. And people are trusting Robinhood with their entry into investing and becoming investors. We see that continuing And we're doing everything we can to make sure that we allow access to the markets, within reason, and also provide the education and tools that customers need.

And I'm very proud of the team for everything that we've managed to accomplish. And brokers have been having issues. They had issues today. This is continuing industry wide. And our performance at the market open, our systems were operational. And we're very, very proud to have unrestricted these symbols and allowed customers to buy them again.

AKIKO FUJITA: Vlad, Zack sort of alluded to the movements that we have seen reported out over the last 24 hours. You drew down your credit line. You also had a capital raise of about a billion dollars from investors. Can you confirm the specifics that have been reported out in terms of that capital raise? That investors were, in fact, given equity at a discounted valuation that will be tied to the price of the shares if Robinhood went forward with a public listing.

VLAD TENEV: What I can say is that we have raised substantial capital through 2020. And the company is well capitalized. And we're proud to have so many investors that have confidence in the company and are continuing to back Robinhood, so that we can continue our growth and serve our customers better and better through the future.

ZACK GUZMAN: Vlad, I hear what you're saying about being better positioned here. And then, you know, this volatility isn't going to get you guys again in the future. But to kind of back that up, I'm sure people kind of want to be, you know, secure in trusting you on that front. And I just got to return to my question, because it doesn't really sound like you answered it, in terms of when you realized this was going to be a problem.

Because, like I said, other exchanges didn't necessarily cut off. And TD Ameritrade and Schwab didn't cut off buys. And it would seem like, if you allowed buys to continue, that it would be essentially selling lottery tickets to your customers, knowing that there was going to be a problem with the drawing, to use the metaphor. So at what point did you realize there were issues around this that you were going to need to raise a billion dollars?

VLAD TENEV: Well, look, I don't really want to get into the details of exactly what happened when. I think if you look at this entire situation, it's a novel situation. A relatively small number of stocks have gone viral on the internet. And as things that go viral on social media and the internet do, there's an exponential growth in interest. And so we have to be prudent. And we have to have a prudent risk management. And that's what the firm did.

AKIKO FUJITA: Let me follow up on that point that Zack made. Because, you know, you, as in Robinhood, did, in fact sort of create this zero or commission-free sort of trading platform, which we've seen other brokerages sort of emulate. But it does feel like there is a level of trust that has been lost as a result of the actions that Robinhood has taken, whether it's fair or not.

And we have heard this from those on-Wall Street vets, some who we spoke to yesterday. Given that we have seen a number of brokerages already adopt this model that you helped make popular, I mean, what's the case that you make? Why do these investors stay on Robinhood, or why should they stay?

VLAD TENEV: Well, again, what we've done is something that other brokerages have done. It's not unique to Robinhood to place restrictions on purchasing certain things at certain times. Other brokers have done it. You've had them on your show explaining their rationale. So I understand, obviously, that people want to not be restricted from investing. And we're all about that.

We want people to have access to the markets. And Robinhood stands for that. And we're going to do our best to do that in the future and serve these customers. But I have to say I'm proud that customers were able to go in and out of positions in thousands of other stocks. And even in these 13 stocks yesterday that we temporarily restricted, customers that had long positions weren't stuck with them and were able to exit without restrictions.

ZACK GUZMAN: Yeah, I'll just be personal, too. We're personal here. You know, you came back on to discuss these things. And I'm not entirely sure why you don't want to get into specifics. Because it seems like it would want to-- it would reinforce the trust you're trying to build here with your community. And after we talked on Wednesday, my mom fall into-- she fell into that retail crowd that got excited by what was going on.

She signed up for Robinhood. She was trying to do this as well. And what we hear from retail investors that came in on that side here is that the trust is shaking when it comes to what you guys are trying to do, to sign up retail investors that may have never traded stocks before.

So I mean, when we hear kind of some of these things that you push back on other networks, why not get into the specifics here to talk about, you know, to beat back some of those conspiracy theories that we heard that you guys sold out to Citadel or said some of the things? Set the record straight on why you made this decision.

VLAD TENEV: Oh, on that conspiracy theory, I think I've over and over again said that it's not true. Our decision to temporarily restrict customers from buying certain securities had nothing to do with a market maker or a market participant or anyone like that putting pressure on us or asking us to do that. It was entirely about market dynamics and clearinghouse deposit requirements, as per regulation.

AKIKO FUJITA: Let me see if we can move the conversation forward, because inevitably there will be investigations that will come out of this. We've already heard the SEC saying they will be looking into it. The chairs of the House Financial Services Committee, as well as the Senate Banking Committee, both calling for hearings. What conversations have you already had with lawmakers? And are you prepared to testify before Congress?

VLAD TENEV: Look, I think we-- everyone at Robinhood operates this company with integrity and, first and foremost, looking out for our customers, the individual investors, and their best interests. Of course, we are constantly in communication with our regulators and with lawmakers. And we continue to do so. And you know, I look forward to having conversations with anyone about this.

Because I think, obviously, it's highly technical and involves settlement mechanics, as you guys saw in some of your other conversations. And I think Robinhood made the right decision here.

AKIKO FUJITA: Can you speak to those specific conversations that you have had? Because we have seen very publicly a lot of lawmakers whether take to Twitter or other networks to talk about their concerns. Senator Elizabeth Warren, of course, coming forward, calling for the SEC to investigate. You also heard from Representative Alexandra Ocasio-Cortez raising her concerns.

So can you be a little more specific on the conversations you had? And do you think those concerns that have been addressed are justified?

VLAD TENEV: I think people want to know what's happening. And they want to understand some of these technical points around how the regulations work and how the market system works. And you know, these are arcane topics that are now being brought to light. So people are talking about the DTCC, NSCC settlements. And I think that, as part of this, the broader public will learn a lot more about how our financial system works.

ZACK GUZMAN: Vlad, I'm trying to learn more about that, too. And look, we took a risk here trying to focus in on the settlement activity. Because, let's be honest, it's the least exciting piece of the story. But rather than attack you like some other networks have gone on to do or looking at maybe the politics of this, look, I just kind of want an answer around the settlement issue. Because you guys went a different route than some of these other exchanges.

You did Clearing by Robinhood, that's what you went that direction to internalize this stuff. So I mean, it sounds like this was the first time that system was stressed. So you know, at what point did you realize that might have been an issue here? And I guess, maybe retroactively, if you had gone with an outside clearinghouse, would some of these issues have happened?

VLAD TENEV: You know, it's hard to say the counterfactual. All I could say is, again, we're very confident about our future. And you know, we're seeing unprecedented interest in the equity markets. I mean, you guys are seeing it as well as-- as well as I am. The idea that, you know, even back in the first week of January of this year, we could have predicted that this would happen around some of these internet stocks, you know, it's a-- nobody was saying that this week would turn out the way it did with sort of social media and finance intersecting in this way.

And through it all, our priorities are, make sure the system is reliable and robust and serves our customers, and improve the quality of service, our customer support, and make sure that gets better and better over time. And we feel incredibly confident in our ability to do that. So I'm happy to come and have these conversations. I just-- that's-- that's how things are here.

AKIKO FUJITA: Vlad, you may be confident in your product. But clearly you've got a lot of investors who are upset with how this played out. You're already facing a class action lawsuit, certainly more lawsuits likely to follow as well. Walk me through the legal case here. You know, number one, how do you fight back? But number two, do you have the funds to fight back?

VLAD TENEV: We feel pretty confident about our future, probably not the best person to opine on the merits legally. But look, we know that customers were upset with the temporary restriction. We've unrestricted it. And now customers can buy these stocks. And we're just trying to do the best thing we can for our customers and operate a platform with high operational integrity and high service levels. And you know, again, I'm proud of the team and how everyone has operated throughout these unprecedented times.

And throughout the entire thing, we have communicated with customers, told them what's going on with their accounts. And it's not unique to Robinhood. Other brokers have done very, very similar, very similar things and taken similar measures.

ZACK GUZMAN: And Vlad, too, just to your last point, and it kind of comes full circle here since we were-- we were discussing this on Wednesday, your kind of notion that it's a net positive for both the country and the economy society as a whole to get investors who may not have ever interacted with the stock market before in their lives to come on board. That you stress that it would be very important for that to happen.

But I wonder, for you on a personal level looking at this, what does it feel like to know maybe that, in Robinhood's goals here, they may have jeopardized that by potentially burning people on the first time they ever signed up for an account to trade a stock, first time in their lives, that now might look at the system and be a little jaded, what that means for society moving forward?

VLAD TENEV: Well, I think it's interesting. We've gotten criticisms in the past of making it too easy to invest and opening access perhaps too much. I do think it's very important. And this does go back to the op ed that I was talking to you guys about a couple of days ago. You know, wealth inequality in this country is going to be a growing problem.

People need to be investing. Individuals should invest. And we believe that the earlier they do it, the better off they'll be. And we're encouraging long-term investing for customers, obviously, that are suitable. And we're encouraging education and providing that informational content. So I could not be more excited about our mission and the ability of Robinhood to continue serving our customers and helping first-time investors become long-term investors.

AKIKO FUJITA: And Vlad, last question, coming into this year, certainly Robinhood one of those companies that was expected to potentially seek out a public listing. In light of what's happened, I know you're not going to say whether you're going to go public or not. But has the thinking around a listing shifted a bit? And do you feel the need to potentially maybe restore some of that trust in order to encourage investing in the company before you think about a listing?

VLAD TENEV: Yeah, we just can't go-- can't go there on the IPO stuff, unfortunately.

ZACK GUZMAN: All right, Vlad Tenev, I appreciate you coming back on here to weigh in on all this. I know you've been busy trying to tackle all this. So appreciate you coming back on to discuss.

VLAD TENEV: I appreciate you guys having me on, thank you.