SPEAKER_04: Now wait, Vlad, you have to turn your camera off and then I'm going to do my little bit where the besty guesting door knocks. Oh no, Jason. No, let's not do silly. This is silly. Here we go.
SPEAKER_00: I can do it. It's very easy for me. Don't worry about it. Don't worry about these guys.
SPEAKER_04: Don't want to do it. They don't like my they don't like my bits. Hey, everybody. Hey, everybody.
SPEAKER_04: Welcome to another episode of the all in podcast with us again the queen of kin why himself David Friedberg the rain man. Definitely counting cards. Yeah. Burn baby David Sax is with us chamath Palihapitiya the dictator by the way and by the way, go ahead JK. I'm Jake out.
SPEAKER_04: Okay, baby seal Jake out. Could you take longer with the intros? I mean, this is like this is
SPEAKER_01: like your one moment to shine torture. I know. I'm branding here. I'm branding you guys as
SPEAKER_04: characters on the show. I do want to I do want to give a big shout out and congratulations for
SPEAKER_02: David Friedberg wedding is beak in a big way. The story by the way, we should actually have founder crazy founder stories and we should have freeburg tell the story of metro mile but it closed its SPAC transaction and went public and it's doing great and congratulations. Thank you. Thanks guys. golf clap. Thank you. Thank you very nice. And joining us this week as our second
SPEAKER_04: bestie guestie after a triumphant performance by Draymond Green on the last all in podcast is Vlad Tenev who is the co founder and CEO of a new startup we wanted to introduce everybody to it's called Robin Hood flat tell everybody what is Robin Hood and what's the mission of this new startup you've you've got? Thank you for for having me having me here hanging with you guys
SPEAKER_00: 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 invest in stocks, options, cryptocurrencies, we offer a debit card and a high yield savings product as well. Commission free and with no account minimums. Vlad, I think you've done an amazing job
SPEAKER_01: building this company and you guys have done an amazing job democratizing access to to the ability to trade. Can we fast let's fast forward to the issue that I mean, this, we discussed, I guess, a few pods ago, because there was intense interest in this, I think it's our highest rated pot ever was discussing the GameStop 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, 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, 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 are being compelled by this clearinghouse. Can you kind of explain what they told you and why you had to do it? 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? Is that something you could have done? Well, I think the challenge was that no doubt we could have communicated this a little bit better
SPEAKER_00: 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, 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 clear why we were doing this, just given all the swirl around all these meme stocks online. But by the, as soon as those emails went out, the conspiracy theories immediately started, 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 buying in the 13 stocks. I think that's where, you know,
SPEAKER_02: when you were on CNBC with Sorkin, people either thought you were obfuscating or you were lying. 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. Like, if you look back on those two weeks- Can you explain to the 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
SPEAKER_00: pre-trade, right? Then the trade and then post-trade. So Robinhood obviously does pre-trade with, 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 the trade is made. So what was not, I mean, if you had to give that answer again,
SPEAKER_02: 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 stand by what I said and I'll explain
SPEAKER_00: it. And thank you, by the way, for giving me a chance to explain it. 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 ongoing deposit requirements. We had met them and in order to relax them and eventually unrestricted them, we needed to raise some more capital and eventually have 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 the journalists are trying to get out of it. Do you think that the risk in the business went up when you decided to self-clear or would
SPEAKER_02: this risk have been the same if you worked through a wholesaler? Well, I think a lot of the other
SPEAKER_00: brokers who relied on clearing firms had the same issue. Right. You know, there's firms like Apex Clearing, which has introducing brokers. Cash App, for example, clears through a third party as well. And they all had this issue. And of course, their response was 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 Robinhood Securities. But I think understanding the space a little bit better, since Robinhood Securities is, you know, a subsidiary of my company, I realize these clearing firms had to do what they did. Like, there's no, it's non-negotiable 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 where my... Who sets those? What's that? Who sets those requirements? That's the clearinghouse, right? Is that the DTCC? Yeah, it's the DTCC. And
SPEAKER_00: a lot of this stuff is actually spelled out in Dodd-Frank. So if you look at Dodd-Frank, you'll see descriptions of the VAR charge and the various special charges there. But I do think 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 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 140 percent short interest, right? So 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 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. Okay. So moving from T plus two to T plus zero, that's one issue. Where do you think margin?
SPEAKER_02: Yeah, that's what I was going to ask. Where is your margin?
SPEAKER_03: What's your thoughts on margin? Yeah. Well, so margin wasn't involved in this particular situation. In fact,
SPEAKER_00: there was an escalation path. Not a lot of people noticed until Thursday, but pretty much all the brokers, including Robinhood, were ratcheting up the margin requirements for all these securities until they got to 100 percent. So by the beginning of the week, they were pretty much all at 100 percent, which means you can't use margin to buy them. You have to have them 100 percent covered. So do you guys have a more specific question on margin? Well, I meant more like, I meant more like, so for example, I think it's true,
SPEAKER_02: but you tell me if this is not true. You guys paid like a $65 million fine to the SEC for gamifying Robinhood, right? And- Not exactly true, but go ahead. Okay. Do you want to just tell us what the truth is?
SPEAKER_02: Yeah. Well, so the fine wasn't for gamifying Robinhood. It was for payment for order flow
SPEAKER_00: and business model related things. The gamification one is the Massachusetts securities one, which is a separate thing. And look, on the SEC thing, we're a fast-growing company. We obviously scaled a lot between the period in question. Obviously, the Securities and Exchange Commission felt like we could have done things better. And I own that. I think that we're fine being held to higher standards. We have to hold ourselves to higher standards. 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, the goal is to build the finest legal and compliance team that the financial industry has seen. Let me tie it back, Vlad, to what we were talking about before. So do you think that it's okay
SPEAKER_02: 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? What 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 more margin you allow is for a new account? Because I don't think people understand what that is.
SPEAKER_04: 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.
SPEAKER_00: So options are all fully paid for, right? Margin is not suitable for everyone. 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 $5 a month. Most brokers don't get a lot of money from their customers. So you have to have $5,000 in your account before you can borrow. And in December, we did lower our margin rates to 2.5%, which is 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. And that's because you have to have a margin of $2,000. So you have to have a margin of $2,000. So you have to have a margin of $2,000. And that's because you have to have a margin of $2,000. So you have to have a margin of $2,000. So you have to have a margin of $2,000. And the other 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 you can actually use that as a credit card. So I actually think it's a powerful tool. Certainly customers have to understand it and be suitable for it. But it unlocks the type of borrowing, not just for buying stocks, but for meeting your daily purchasing needs that I think is very useful. If somebody puts $2,000 in blood, can they trade $4,000, $6,000, $8,000?
SPEAKER_04: How does it work? Yeah, the actual calculations are, there's no blanket formula I can give you,
SPEAKER_00: 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 100%. So those have to be fully paid for. Other stocks have an initial requirement as low as 25%. If it's one that is deemed by the operational staff and our processes as not being super volatile, and it can go in between. So 25% initial requirement all the way up to 100%. So you can trade four times your money if it's a really blue chip secure stock?
SPEAKER_00: More or less, yeah, with some nuance around that. Time and again, Vlad, there's studies that show
SPEAKER_03: that it's really difficult to beat the market and make money trading in an efficient market. Like the market we have for stocks or options or what have you. There's a lot of players, there's a lot of liquidity, there's a lot of people with information. These great fund managers over time underperform just the S&P. And I think I mentioned this when we had that pot a few ago, that I was involved in a forex trading company and 60% of accounts eventually ran out of money. Can you share with us what percent of Robinhood accounts run out of money? And do we mask, generally, and I'm not accusing Robinhood specifically of this, but do we mask the idea of investing in businesses as 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 kind of adds up, wipes out the account. That's what I saw at this forex company I was involved in. Can you share with us in a very candid way, how many accounts do eventually go bankrupt at Robinhood and how much of that do you really see? First of all, I'd say forex is a little
SPEAKER_00: bit different because the leverage you get in forex is like orders of magnitude higher. I'll admit to that. It was like 10 to 50 to one leverage. So, you're totally right. Yes.
SPEAKER_03: Yes. So, I do think the businesses are a little bit different. Most of our customers don't use
SPEAKER_00: 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 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. But is that the majority of users today or the minority?
SPEAKER_03: How many accounts do you see kind of cycle down to zero over what period of time?
SPEAKER_00: I think a very small percentage of accounts 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. And I think people have taken advantage of that. And our customers in general have benefited from the recovery very, very significantly. So, I would reject the meme that Robinhood customers are active traders that are just churning their accounts and losing all of their money. That's just simply not what we're seeing. I know Sax has a question, but one
SPEAKER_04: 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 Joe Biden, you forgot the White House one. No, no, this was a formulaic decision made by
SPEAKER_00: Robinhood Securities due to Citadel. So Citadel didn't call and ask. Sequoia didn't call and ask. No. Did the SEC call you and say this has to stop?
SPEAKER_01: No. But the clearinghouse did, right? Yeah. Well, they called and they said,
SPEAKER_00: 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 so just me pick up on that. So at the same time that was
SPEAKER_01: happening, and I know this wasn't Robinhood, this is not your company, but Discord and Reddit were receiving reports that the WallStreetBets 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 WallStreetBets. Reddit to their credit did not. Do you have a take on what happened there? And I mean, I assume you don't think WallStreetBets was engaged in hate speech.
SPEAKER_00: Well, so that happened Wednesday, I believe. And yeah, we were watching it. It was first, it was like, oh, wow, Discord shut down. And then I think WallStreetBets went dark on Reddit for a little bit as well, but I'm not quite sure of the reasoning behind that. Look, I mean, I disavow hate speech misinformation. I'm not judging which of the posts are hate speech or not. I think that's the social media companies that should take a look at that. The mods, I think the mods closed
SPEAKER_02: down Reddit for like a little bit and then turned it back on. Yeah. I mean, a lot of these things
SPEAKER_04: get triggered if 10 people report it at the same time. It just, it sets off. It seems to me that,
SPEAKER_01: and certainly this is, if you want to call it a conspiracy theory, it seemed like you had this WallStreetBets group, they were on one side of the trade. You had these WallStreetHead funds that are 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 WallStreetBets. Because the only way that WallStreetBets as a decentralized group of millions of traders can stick together and compete with these hedge funds is if they can communicate with each other by these services. And so, it seems like there was an organized effort to try and take them down at the exact same time that they were frozen out of the buy side of the trade. Flagg, do you think that there should be more transparency in the financial markets,
SPEAKER_02: 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 we should move to perfect transparency in the financial markets?
SPEAKER_00: I do think that there should be more transparency. And I'm glad you brought up payment for order flow because it's something that I'm trying to take on. You guys might have noticed I published a post on payment for order flow. I started a tweet storm that is meant to just start the conversation around it. I want to understand the misconceptions and the theories 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. And I think the first step is actually engaging in the conversation and connecting the people that understand the details with the people that have issues with it. And I don't think that's been happening enough. So, for sure. But what about stuff like margin shorting? Do you think that we should move all of this stuff so
SPEAKER_02: that it's just out front for everybody to see? Well, I think if we migrate to a better settlement infrastructure and move to real-time
SPEAKER_00: settlement, you get a lot of that stuff for free. And I know a lot of the crypto people came out after I published my post and said, crypto solves this. You could just put it on a blockchain and everyone could see publicly what's going on and which shares are being held short, where they are, who's owning them. So, I think I would be in favor of more transparency. I'm not sure at what point there's sort of like negative secondary effects. I haven't kind of unspun the thread fully, but I think we can keep taking it one step at a time and see. More transparency generally, I think, is much better. Hey, Vlad, when you guys go public, you've talked about having a listing at some point here soon.
SPEAKER_03: 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?
SPEAKER_04: Wow. Good question.
SPEAKER_00: It is an interesting question. It's one that I probably... 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.
SPEAKER_03: Fuck the hedge funds and the big guys. If that's the point, then you give retail equal access. In all these transactions, as you know, institutions get all the access and the retail is like paying the price. Well, here's something interesting. Have your entire listing done through retail. It would be a game-changing transaction.
SPEAKER_00: Yeah. So, I mean, a lot of this, it's really interesting that this turned into individuals versus hedge funds because I think that's a really powerful story. But you also have large institutions like Fidelity that are holders of all these stocks. You have individuals on a lot of platforms that were short selling them as well. Not Robinhood because Robinhood actually doesn't allow short selling by individuals, but a lot of the other brokers do. And you had statistics coming out that actually show retail versus institutional. And there were some counterintuitive results. So, I think if you actually look deep into the plumbing, the story of long individuals, short institutions on opposite sides, I think there's a little bit more nuance to it than that. Vlad, if you had to do it over or actually
SPEAKER_02: forget about the past, think about the future. What do you change inside the company? Well, let's see. I think the 3.4 billion in extra capital certainly helps. I think I'm very proud
SPEAKER_00: of the transition that we made between Thursday and Friday. So, Thursday, we had the blunt hammer of PCO-ing 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, it was up to 50 stocks. And we published that on our website. So, 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 the great thing about these sorts of crises is sort of months and years worth of work get compressed and people are just like super aligned on the key priorities we need to do to move the business forward. And we saw that. And then the third thing I'd put is just, maybe you guys have seen, 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 I'm out there trying to encourage more transparency. I would say much better today than with Elon, much better with Elon than Sorkin.
SPEAKER_04: So, progress has been made. I have 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 waitlist, we onboard 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. 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
SPEAKER_00: new account approvals off and on, depending on on the load. And, you know, customers have been experiencing in some cases, short delays with account approvals, obviously not an ideal solution from our standpoint. But, you know, 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,
SPEAKER_04: millions? Jason, are we are we running an ad for Robin Hood stop? No, I'm just glad.
SPEAKER_02: None of us cares. None of us cares. Flat last question. Hit me. Hey, listen, if you had to pick two different CEOs 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. I'm not sure.
SPEAKER_00: Sure. I think that I think I'm proud of of of how the firm navigated this. I think obviously there's ways to improve upon it. 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.
SPEAKER_02: And that was just money from the cage for poker.
SPEAKER_00: I got a lot of people reaching out to me, which was amazing.
SPEAKER_01: 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 that the thing you do over again? No, because he'd be throwing his own company
SPEAKER_02: under the bus. He'd have to say Robin Hood Securities is telling Robin Hood, the broker, to post this money because Robin Hood Securities is being told by their downstream clearing. So it's like you're you're in you're in a you're in a day. You're saying you're saying it now. So
SPEAKER_01: better to say it 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. We did. The team did what they had
SPEAKER_00: to do. I don't think there was any way to navigate that differently. I think the automated emails that went out to customers saying 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 and that with the foresight that maybe customers would think that a hedge fund forced us to do it or something like that. So certainly 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 I've had that in mind the entire time. And I'm just doing what I can to make that future reality, both for Robin Hood and for the financial system. I think that this could lead to some really positive change industry wide. Yeah. And just just just one last softball here. This is not about
SPEAKER_01: what happened with GameStop. We've had a debate on this pot. It got kind of heated between Chamath and Jason about the nature of Jason's investment in Robin Hood. Can you tell us your side of the story of what happened at Antonio's Nuthouse and how much stumbling was involved precisely? OK, I'm very glad you brought this up because I've been meaning to call Jason out on it.
SPEAKER_00: He has this great story of how, you know, we met at Antonio's Nuthouse and he wrote a check. I think the real story is that on Robin Hood launch day, which was a Saturday, and we violated
SPEAKER_00: every rule of PR and marketing by launching inadvertently on a Saturday. I got a reach out from Launch, who was one of the first one of the first outlets to cover our launch on Saturday. And Jason's Jason's friend, Simon, ex-employee, who ended up running Social for us for a bit, was a big fan of Robin Hood. So 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 gave me the advice to go with Index Ventures. No, no, I said Sequoia all the way. Don't get me
SPEAKER_04: in trouble. I'm James Sequoia. I promise Michael Moritz, Doug Leone, whoever's watching, I told them Sequoia was great. They unfortunately passed on our Series A as did a lot of other funds.
SPEAKER_04: Yeah. All right. Listen, thanks for coming on the pod. We really appreciate you taking the time and continued success. And I'm really glad we didn't give you a job offer back in 2008. Sounds
SPEAKER_03: like it was the right move for you. Funny how things work out. Yeah. Well, apparently I interviewed him in 2008 for a job and he didn't get the job. It was you and Alex. Alex Michalka
SPEAKER_00: was my main interviewer. But it's funny, I graduated with a math degree. I was doing pure math, which in 2008 made me unemployable. We were the only people hiring at that point. Yeah. You were the only people that would interview me. 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 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.
SPEAKER_00: Thanks, Vlad. Thanks for having me.
SPEAKER_04: Wait, Vlad's back. Wait, Vlad's back. Sorry. I thought I was supposed to leave. I didn't know
SPEAKER_00: if you guys want to be. You can stay. I was saying after a year of Jason asking us to run ads, he's
SPEAKER_02: found a way of trying to make this a 45 minute infomercial for Robin. Absolutely. I listen,
SPEAKER_04: I'm ride or die. Vlad, you know that I'm ride or die with my founders. I don't need it. We're just
SPEAKER_00: trying to keep, uh, keep everything up and let all the people safely in who have been banging on our door. How, how much have you been sleeping Vlad? Have you been able to sleep? I mean, this has got
SPEAKER_04: to be exhausting. Uh, Oh my God. Really? Can you ask him something like at least semi-fucking
SPEAKER_02: challenging, honestly, that's why you guys are here. If you're walking down the road and a
SPEAKER_03: Robin hood customer, this is a tough one. I'm sorry. You thought you were over this, but you logged yourself back in. So at a Robin hood customer that lost all this money, when they got locked out of trading that day, it 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? Cause I, I know that's a tough one to swallow. And I know that, you know, we've heard the, the, the, the story around what happened, but, but what do you say to that person?
SPEAKER_00: Well, first of all, I'd be very, very empathetic. Um, I 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
SPEAKER_01: the ability of wall street bets to continue the trade 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 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, that, that broke the trade, right? Maybe. That's what I, that's what I cry. Hypothetically. But that's what they're so, but that's what they were so upset about is
SPEAKER_01: 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 the, 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
SPEAKER_00: hedge fund side or what happened. Look, what I can say is, uh, we're going to do our best to, uh, make sure that we get better and we serve our customers, uh, whenever, whenever they want to buy stocks and we'll do that and we're going to get better and better every day. And the truth is,
SPEAKER_04: 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 try without question.
SPEAKER_00: Yeah. Yeah. You make nothing. If people stop trading, you need people to trade. It's the
SPEAKER_04: core of the business, right? Yeah. This wasn't, you know, a value judgment or some kind of,
SPEAKER_00: 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
SPEAKER_02: and revenue sharing on, um, sort of like the, the, the ways in which like, meaning how much do you think of that payment for order flow revenue should you share with customers?
SPEAKER_00: 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? Um, 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
SPEAKER_02: 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 business model, or at least the business strategy of all these companies is when you find to your point, these opaque pools of revenue, um, the innovation is just to give consumers power by taking these costs to zero. If you've had decided tomorrow to do, um, Robin hood pro, you know, higher level
SPEAKER_04: than gold and charge 50 bucks a month for 50 trades, and then $5 each trade after that would solve anybody's misgivings about this, right? You could just offer both options. Well, I think it's,
SPEAKER_00: it's payment for order flow enabled commission free trading, right? It helps cover the costs of the business that, uh, 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, would not benefit, right? If the option is there, it'd be like Facebook saying, we have an option for you to pay
SPEAKER_04: and not see ads and be tracked, right? It would just be great option. What do you think is the
SPEAKER_02: 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
SPEAKER_00: 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. Awesome. Uh, your PR people are literally
SPEAKER_04: going to come out breaking your glass in your house. She, your peer person is literally running from HQ. She's going to be starting bagging on the back window. You cannot be on this pod. Uh, no great job, Vlad. Um, and, uh, remember you see, or a code bestie and get your, kind of your first free month. Well, thanks for having me, gentlemen. All right. Thanks,
SPEAKER_00: man. Great job. Take care. Thanks. Thanks. Thanks for answering our questions. Thank you for coming.
SPEAKER_02: You're going to log back in in two minutes, right? Yeah. Come back for the chess and Boudin and
SPEAKER_04: Gavin, you some recall news. Your PR people will be delighted if you comment on that. Yeah. Are we going to do a debrief? The debrief for my opinion is that,
SPEAKER_02: um, 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 then 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 Robinhood wasn't the only one, they're all the trading and, and sort of like high frequency shops. And so, you know, that's a 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, if folks lose enough money, they're going to be pretty upset. I think sounded to me like David, freeburg, you had a good point about offering the Robin Hood,
SPEAKER_04: consumer base, the ability to buy the shares, I think 100% of it should go to the retail
SPEAKER_03: investors. He didn't say no. And he kind of I kind of got the inclination that he was going to do
SPEAKER_04: that. 100% he will not. Yeah, this came out in the past where he said they were going to offer
SPEAKER_03: some of the IPO shares to Robin Hood customers. And so that was a few months ago. I think I said publicly on Twitter, why don't you offer all your shares to IPO customers? Like why take any of them direct to me? Could he technically become a clearinghouse and IPO people, but then what
SPEAKER_04: would be like a partnership in it? Yeah, like, why don't you just take, you know, if Fidelity wants
SPEAKER_03: 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 as well, we're buying 50 $100 million blocks at a time, so we don't want to have to be in the market during 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 the that's the challenge with, 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
SPEAKER_04: would if they could fill their demand, their demand on their book for their IPO from retail,
SPEAKER_03: from retail, do that. And let anyone else let Fidelity sign up for Robin Hood account and buy their shares through Robin Hood, you know, like, the fact is, the big block buyers always get a discount, right? They pay wholesale pricing in these markets. And that's also part of why it's so difficult for retail to actually find a footing. 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 in the IPO to Robin Hood customers to great. It's a great kind of publicity point. But it would be really powerful if they shifted 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 tried to do this Dutch auction. So the reverse pricing of anyone, any individual, any retailer, and 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 T-ro and so on, selling a big discounted shares. 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, Sax, what is your debrief on the Vlad appearance?
SPEAKER_01: So I think Vlad did a pretty good job handling our questions, answering some... B plus, B minus? Answering some, deflecting some. I think that, look, I think I don't think Vlad's a bad guy. I think he's a good guy. I think Robinhood 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. Because it did break the buy side of the trade for Wall Street Bets. And then that basically allowed the hedge funds to recover. And that was that moment. And so that was a big deal. I think the consequences of that decision were a big deal. But it's a counterfactual, right? We don't know. We'll never know if that was...
SPEAKER_04: I think we know. Of course. Look, it was that Thursday where the short squeeze ended because
SPEAKER_01: Wall Street Bets couldn't keep buying. They couldn't keep engineering their side of the trade. Obviously, that's why it cracked. 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 it have gone to five or 600 is the question.
SPEAKER_01: Yeah, 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 was going to get left holding the bag. Those were all questions that got answered in a completely different way. Because Robinhood did what it did. Now, I don't believe that they had a choice. I think they did it because they were forced to do it. But it did have huge consequences. I thought he did. He's doing a better and better job
SPEAKER_04: explaining this highly technical stuff. And, 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 that that was an area where
SPEAKER_01: I really wanted to hear more details and get more clarity. Because, I mean, I believe that 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? Give me that. Okay, fair enough. That's what I'm reading into it. And I don't think I think it might be one of these non disclosures,
SPEAKER_04: where you can't mention the non disclosure, which we've all maybe, maybe but but but but see,
SPEAKER_01: 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, yeah, that's what caused all the problems for them. Yeah. All right. They
SPEAKER_04: have folks everybody go to the syndicate.com slash 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.
SPEAKER_01: Oh, man.
