By Vlad Tenev, CEO and Co-Founder, Robinhood
Today, I had the opportunity to appear before the House Financial Services Committee and speak about Robinhood and the millions of people we serve. I wanted to share that message with you here.
Almost eight years ago, Baiju Bhatt and I founded Robinhood. We believed then, as we do now, that the financial system should be built to work for everyone, not just a select few. We dreamed of making investing more accessible, especially for people without a lot of money. The stock market is a powerful wealth creator, but barely half of U.S. households participate in it. We created Robinhood to economically empower all Americans by opening financial markets to them.
I was born in Bulgaria, a country with a financial system that was on the verge of collapse. At the age of five, I immigrated with my family to America in search of a better life. I have benefited from all America has to offer, and Robinhood’s mission to democratize finance for all has a very special significance for me.
Robinhood’s platform allows people from all backgrounds to invest, with no account minimums and zero commissions. Contrary to some very misleading and highly uninformed reports, we see evidence that most of our customers are investing for the long-term. With features like fractional shares, dividend reinvestments, and recurring investments our customers can start with small amounts and grow their investments in blue chip stocks and ETFs over time.
We have always recognized the responsibility that comes with helping people invest. We’ll continue to enhance our educational platform to help customers no matter where they are in their financial journey. Hundreds of free educational resources are available to everyone on our Learn website right now.
Today, the total value of our customers’ assets on Robinhood exceeds the net amount of money they have deposited with us by over $35 billion. While markets fluctuate, this tells me that our business model is working for everyday Americans. This is the Robinhood community. Many people say that Robinhood has helped them to pay car loans, reduce student loan debt, meet daily bills, and save for the future. We’re proud to serve them.
In late January, many brokerage firms saw a massive increase in trading activity in a handful of stocks. Prices were moving dramatically day-to-day, even hour-to-hour. One specific day—January 28th—proved to be a completely unprecedented event. This spike in trading activity and volatility meant that Robinhood Securities, our clearing broker, was required to hold the line and post additional firm capital as collateral to support our clearinghouse deposit demands. To put this in perspective, on January 28th our daily deposit requirement was 10 times more than January 25th.
As a result, Robinhood Securities—and other firms—imposed temporary trading restrictions on certain securities. We began allowing limited buys of these securities the following day and we have since lifted the restrictions entirely.
There are two points I want to make clear about the temporary restrictions:
First, Robinhood Securities put the restrictions in place in an effort to meet increased regulatory deposit requirements, not to help hedge funds. We don’t answer to hedge funds. We serve the millions of small investors who use our platform every day to invest.
Second, Robinhood immediately secured additional funds. Altogether, through capital raising and other measures, we have increased our liquidity by more than $3 billion to cushion ourselves against increased collateral requirements and related market stress.
Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us. To our customers, I apologize, and please know we are doing everything we can to make sure this won’t happen again.
I want to highlight one more thing. The existing two-day period to settle trades exposes investors and the industry to unnecessary risk. There is no reason why the greatest financial system in the world cannot settle trades in real time. I believe we can and should act now to deploy our intellectual capital and engineering resources to move to real-time settlement. Together we can solve this.
Before I close, I want to sincerely thank the millions of customers who continue to use Robinhood to access the markets every day. We are grateful and committed to you.