Robinhood co-founder Vlad Tenev defended his company’s move to restrict trading for GameStop, AMC Entertainment and others, amid a frenzy on Wall Street caused by a group of Reddit-based amateur investors.
The company restricted users from buying these stocks after amateur investors from the subreddit r/WallStreetBets drove up the prices, financially rocking major hedge funds. The app received bipartisan criticism from lawmakers, including Republican Texas Sen. Ted Cruz and New York Democratic Rep. Alexandria Ocasio-Cortez. (RELATED: Robinhood Faces Bipartisan Backlash After Banning Trades On Specific Stocks)
“There are, frankly, as you know, a lot of angry customers out there and a lot of questions about what took place and the decisions that you made to limit so many of your customers’ ability to buy stocks like GameStop, questions about whether you have a liquidity problem, whether you’re trying to protect them from themselves, whether Citadel did this,” CNBC anchor Andrew Ross Sorkin told the Robinhood CEO. “Explain what happened today.”
“We had to make a very difficult decision, it’s been a challenging day. We made the decision in the morning to limit the buying of about 13 securities on our platform, so to be clear, customers could still sell those securities if they had positions in them, and they could also trade in the thousands of other securities on our platform,” Tenev said.
“We absolutely did not do this at the direction of any market maker or hedge fund or anyone we route to or other market participants,” he added.
Tenev cited market instability as justification, stating, “We’re really in unprecedented times, and in order to protect the firm and protect our customers, we had to limit buying in these stocks.”
Sorkin interrupted Tenev, claiming it appears like he’s suggesting there is “a liquidity problem inside the firm.”
“There was no liquidity problem,” Tenev responded. “And to be clear, this was done pre-emptively. So we did this proactively, and thousands of other securities remain tradable on the platform. Customers that held these positions were able to sell them, and we’re doing what we can to allow buying and to remove these restrictions in the morning.”
GameStop’s stock price collapsed by 62% Thursday, resulting in trading freezes. BlackBerry followed suit, collapsing 44%, AMC Entertainment was down 67% and Nokia fell 30%, according to The Hill. The Dow Jones Industrial Average bounced back by more than 500 points before noon after heavy losses Wednesday.