Speaker 1: Hi everyone, I'm Emily Chang and this is Bloomberg Studio
Speaker 1: at one point. Oh it is one of the most
Speaker 1: popular apps on the App Store, and possibly one of
Speaker 1: the most despised. Robin Hood launched in April with a
Speaker 1: state admission to democratize investing. It's named, of course, for
Speaker 1: the legendary outlaw who stole from the rich to give
Speaker 1: to the poor. Thanks to a slick interface, no commissions
Speaker 1: or minimums, the idea is anyone anywhere can invest in
Speaker 1: thousands of stocks, just like the big guys. But taking
Speaker 1: on Wall Street has led to test after tests, from
Speaker 1: outages to a sixty five million dollar fine from the SEC,
Speaker 1: and then the perfect storm on January. This is unbelievable.
Speaker 1: We're looking at anywhere from forty to eight hundred percent gains.
Speaker 1: Traders drove the price of game Stop and several other
Speaker 1: so called meme stocks up so high, so fast that
Speaker 1: robin Hood faced a demand for billions of dollars to
Speaker 1: offset risk. The company restricted buying on thirteen stock, including
Speaker 1: game Stopped. Customers were furious, meme stocks plunged, and CEO
Speaker 1: of lad ten Of had to answer to lawmakers. At
Speaker 1: that moment, we would not have been able to post
Speaker 1: the three billion in collateral. Robin Hood now faces even
Speaker 1: more questions about its model and whether it's exposing largely
Speaker 1: novice investors to undo risk. Here to answer those questions
Speaker 1: on this special edition of Bloomberg Studio. At one point,
Speaker 1: Oh robin Hood CEO lad ten of you and your
Speaker 1: co founder by Jubat started robin Hood in part in
Speaker 1: response to the Occupy Wall Street movement, which was filled
Speaker 1: with angst against the financial system and then amplified on
Speaker 1: social media. Do you see the game stop frenzy as
Speaker 1: an echo of that? I think you're seeing a continuation
Speaker 1: of a few things. Uh. I think if you look
Speaker 1: at a lot of the anst after the last financial crisis,
Speaker 1: people were very, very frustrated that the recovery went to
Speaker 1: the wealthy. Uh, it went to institutions. And we we
Speaker 1: built robin Hood to enable economic opportunity for everyone. We
Speaker 1: wanted everyone to have access to the capital markets, which
Speaker 1: has been one of the greatest wealth creation engines in
Speaker 1: human history. So I think, um, what you're seeing now
Speaker 1: is a movement by individuals to participate and become a
Speaker 1: bigger and bigger force in the financial markets. Now both
Speaker 1: of you are immigrants. You grew up in Bulgaria, your
Speaker 1: parents worked at the World Bank. How has that shaped
Speaker 1: your perspective. Yeah, so I immigrated from Bulgaria when I
Speaker 1: was five years old. Obviously, when my my family and
Speaker 1: I came to the US in the early nineties, we
Speaker 1: were starting from nothing, so um. My dad was a
Speaker 1: graduate student, my mom worked as a waitress and also
Speaker 1: in one of the few remaining textile plants in the
Speaker 1: US at the time. So I had the experience of
Speaker 1: starting from from basically nothing. Also, in Bulgaria in the
Speaker 1: mid nineties, the financial system effectively collapsed. There was a
Speaker 1: period in n where the Bulgarian currency was going through
Speaker 1: hyperinflation and you were seeing around two thousand percent annualized inflation.
Speaker 1: So I think we have we we sort of assumed
Speaker 1: in the US that we have the US dollar and
Speaker 1: it's stable and it's this baseline that we can rely on.
Speaker 1: But I think seeing my grandparents go through that experience
Speaker 1: in Bulgaria where their pensions became essentially worthless, um, really
Speaker 1: led me to appreciate that you have to be diversified
Speaker 1: and being plugged into a global financial system where you
Speaker 1: can diversify your wealth and spread your savings around and
Speaker 1: not rely too much on any one tool or asset.
Speaker 1: I think I got to experience that very very directly. Now.
Speaker 1: You became Soul CEO in November, and in the first
Speaker 1: three months in that role, you've navigated one of the
Speaker 1: biggest crises in the company's history. You've testified before Congress.
Speaker 1: What have you learned in those three months. There's the
Speaker 1: phrase that there's some decades where nothing happens, and then
Speaker 1: some weeks when decades happen, which I think, uh, I
Speaker 1: think is representative of what we've been through at Robin Hood.
Speaker 1: I think that uh now, not just Robin Hood, the
Speaker 1: entire industry has seen investing go from something that's very
Speaker 1: niche I mean it's something that you know, you'd hear
Speaker 1: about on on TV, but a relatively small number of
Speaker 1: people were actually interested in it. And uh now you're
Speaker 1: seeing investing very much be a part of the cultural zeitgeist.
Speaker 1: I mean, people are talking about it on social media,
Speaker 1: we are having Congressional hearings about it. And I think
Speaker 1: anything entering the cultural zeitgeist, anything new like that, there's
Speaker 1: bound to be uh, some confusion. There's there's bound to
Speaker 1: be some stress, and I think I just have to
Speaker 1: keep it in perspective for myself that, um, this is
Speaker 1: kind of what I signed up for. And any time
Speaker 1: you're causing change in society and um and and kind
Speaker 1: of up ending the status quo, it's it's probably not
Speaker 1: gonna be the most comfortable process. But I'm curious how
Speaker 1: testifying before Congress ranks on the nerves scale of the
Speaker 1: hard things that CEOs have to do. Yeah, I mean
Speaker 1: I hadn't done anything like that before. Um. The way
Speaker 1: that I thought about it was, this is just a
Speaker 1: great opportunity to tell the story of Robin hood, and
Speaker 1: not just the events of January, but the broader story
Speaker 1: of you know, retail investor participation in our financial system.
Speaker 1: One of kind of the unsung untold stories is that
Speaker 1: if you look at the recovery, UM, people that are
Speaker 1: getting into the stock market are more diverse. There's a
Speaker 1: lot more women entering the space than than ever before.
Speaker 1: And generally, UM, we we've been a positive force and
Speaker 1: people on Robin would have done quite well. I announced
Speaker 1: the stat at the congressional hearing actually that if you
Speaker 1: look at our aggregate customer activity, uh, the unrealized and
Speaker 1: realized gains including crypto and stocks were over thirty five
Speaker 1: billion dollars. So that's UM. That's you know, of February
Speaker 1: billion dollars of value that is in customers pockets UH,
Speaker 1: literally their smartphone. UM. And without Robin Hood that may
Speaker 1: not have been possible, especially during such difficult times as
Speaker 1: the pandemic. Now you said you got that call from
Speaker 1: your clearing house at three thirty in the morning January
Speaker 1: asking you to put up an extra three billion dollars.
Speaker 1: Take me back to that moment and describe how that felt, UM,
Speaker 1: knowing that you were going to have to make a
Speaker 1: hard call. I think the team played it by the
Speaker 1: books and I'm proud of how they handled it. And
Speaker 1: of course, you know, we look back and we say, UM,
Speaker 1: what are the things we could have done better? And
Speaker 1: I'm sure there's there's many many things that we could
Speaker 1: have done better, specifically with UM sort of how we
Speaker 1: communicated with the decision and the days leading up to
Speaker 1: it when we were seeing increased volatility UM. But I
Speaker 1: think as far as the operations team and how they
Speaker 1: were acting in a moment of UM very high stress,
Speaker 1: I'm very proud of that team and their professionalism and
Speaker 1: the way that they had to juggle, you know, making
Speaker 1: the customers that wanted to buy Meme stocks happy, but
Speaker 1: also protecting the financial system and are are much broader,
Speaker 1: larger customer base. You decided to allow selling but not buying,
Speaker 1: of thirteen securities, including game Stop, and you and I
Speaker 1: spoke on that day, and I've never seen so much
Speaker 1: anger in response to an interview on social media. Customers
Speaker 1: were livid. They thought you were lying, They thought you
Speaker 1: were in cahoots with Hedge Funds, They thought you were
Speaker 1: just trying to protect yourself or the company. Did you
Speaker 1: understand that anger or where that was coming from. I
Speaker 1: think a lot of it was based on the false
Speaker 1: premise of Robin Hood colluding with Hedge Funds or Melvin Capital.
Speaker 1: There was even a rumor that the White House had
Speaker 1: called us UH told us to shut down trading of
Speaker 1: this stock. So I think there's a lot of misinformation.
Speaker 1: What I wanted to do was dispel the misinformation. So
Speaker 1: when I came to UM, when I came on your
Speaker 1: show that day, and by the way, it was obviously
Speaker 1: I was kind of running on fumes, trying to navigate
Speaker 1: through the day to day of the issue raising the
Speaker 1: several billion dollars, and obviously it was a very very
Speaker 1: tricky situation. But I would say, as as angry as
Speaker 1: people were that we um we prevented them from buying,
Speaker 1: have we prevented customers from selling and capturing their gains
Speaker 1: on the stock um? People would have been much more angry.
Speaker 1: There would have been riots on the streets had we
Speaker 1: stopped selling. So this idea that you know things would
Speaker 1: have been better, I think it's just categorically falls. This
Speaker 1: is my conversation with Robin Hood CEO Lad ten of
Speaker 1: Up Next is robin Hood gamifying, investing, glorifying, gambling. President
Speaker 1: Biden's pick to run the SEC says investigating that will
Speaker 1: be one of his top priorities. What will that mean
Speaker 1: for robin Hood? The CEO responds to his harshest critics,
Speaker 1: I'm Emily Chang. This is Bloomberg Studio. At one point
Speaker 1: out free trading is the industry standard. Now robin Hood
Speaker 1: is then under scrutiny for gamifying that trading, and the
Speaker 1: controversy has reopened this broader question of your role in society.
Speaker 1: What do you say to critics who say you're democratizing addiction,
Speaker 1: you're glorifying gambling. I reject the idea that investing in
Speaker 1: the US capital markets is UH is gambling. UM. I
Speaker 1: think we have a problem in this country, which is
Speaker 1: that UM. Since the end of World War two, UM,
Speaker 1: more and more of the stock the corporate stocks in
Speaker 1: America have been UM have been owned by advisors or
Speaker 1: other institutions or intermediaries. So at the end of World
Speaker 1: War two, the majority of stocks were actually hold held
Speaker 1: by households and UM. That's been going down over time.
Speaker 1: And I think at the same time, you've seen really
Speaker 1: really high concerns about income inequality and wealth inequality, and
Speaker 1: these concerns threatened the fabric of our society. And I
Speaker 1: think people agree that that's a problem, and we've got
Speaker 1: a product here that UM has real potential to curb that.
Speaker 1: So I think any attempt to prevent individuals from accessing
Speaker 1: the markets directly is just UM it's just poorly directed.
Speaker 1: I think, if anything, we should be looking at how
Speaker 1: to encourage individuals from to invest in in the markets
Speaker 1: directly and make it even easier and remove the remaining
Speaker 1: barriers that that are in the way. That's said Gary Gensler,
Speaker 1: President Biden's pick to run the SEC, has said he's
Speaker 1: going to address the gamification of investing as one of
Speaker 1: his top priorities. What will that mean for Robin Hood? Well,
Speaker 1: I think, um, first of all, we're excited to work
Speaker 1: with the incoming administration to um to clarify some of
Speaker 1: these things. And uh, we we welcome people looking into it.
Speaker 1: I think what they'll find is uh uh gamification is
Speaker 1: uh is poorly defined. Um, It's not happening on robin Hood. UM.
Speaker 1: I think people just want to invest in stocks, and
Speaker 1: regardless of whether they do it on robin Hood or
Speaker 1: any of the other brokers with zero commissions and low
Speaker 1: account minimums, that that's now possible. So on the point
Speaker 1: of gamification, your confetti animation, that confetti that pops when
Speaker 1: users make certain trades, this is something that you've defended,
Speaker 1: but now Bloomberg has reported it's something you're you're thinking
Speaker 1: about potentially getting rid of. What is the status of that, Well,
Speaker 1: I should say, UM, I'm a bit surprised by by
Speaker 1: how much attention that the confetti animation has gotten. Um.
Speaker 1: It's literally uh, an animation that comes up after you
Speaker 1: make your first trade. You think by from reading from
Speaker 1: reading some of the commentary that confetti's flying the flying
Speaker 1: through the app all over the place. But um, the
Speaker 1: way we thought about it is, um, the first time
Speaker 1: someone becomes an investor, and we do have a lot
Speaker 1: of first time investors on our product. Um, that first
Speaker 1: moment of buying a stock and becoming an owner in
Speaker 1: a company is a milestone moment that people should celebrate.
Speaker 1: And so you'll see you know, confetti animation on your
Speaker 1: first trade. You'll see us adding snowflakes if the markets
Speaker 1: are closed on December or January one, you know, snowflakes
Speaker 1: will will follow in the app. And there's a lot
Speaker 1: of these delightful, uh graphical moments where um it's just
Speaker 1: reflective of almost an artist signing their work. So does
Speaker 1: that mean you're not getting rid of it anytimes soon? Well,
Speaker 1: I don't want to talk about specific decisions. We we
Speaker 1: don't want to make decisions um governed by sort of
Speaker 1: what what the media says about robin Hood. But we're
Speaker 1: always looking to improve the experience, and um, you know,
Speaker 1: sometimes we might replace things with things that we feel
Speaker 1: make customers happier and meet their needs. So we're we're
Speaker 1: always looking looking to do that UM. And you know
Speaker 1: it might mean certain changes to the the customer interface, UM,
Speaker 1: and it might mean other things, but I guess just
Speaker 1: be on the lookout for them. Now we're seeing a
Speaker 1: prolonged sell off in the markets. I've seen a bunch
Speaker 1: of people tweeting screenshots of their robin Hood notifications. It
Speaker 1: was a blood bath for a lot of people, including
Speaker 1: many of your customers who are only used to things
Speaker 1: going up. If there's a correction, How worried are you
Speaker 1: about your customers hurting? And if your customers are hurting
Speaker 1: on a large scale, does that hurt robin Hood? We
Speaker 1: we definitely uh. I want to make sure we align
Speaker 1: ourselves with long term customer outcomes UM. And we've been
Speaker 1: saying the entire time that investing is a habit, it's
Speaker 1: a skill. UM. We encourage people to get started early,
Speaker 1: but also build up these habits over a long period
Speaker 1: of time. And I'm personally a huge believer in long
Speaker 1: term investing, So I think a lot of the shorter
Speaker 1: term trading makes its way into the public discourse because
Speaker 1: it's it's more interesting and there's more to talk about
Speaker 1: than someone just building up a diversified portfolio over time.
Speaker 1: But that's how most of our customers use our products.
Speaker 1: Most of our customers aren't buying and selling on a
Speaker 1: daily basis. They're building up portfolio in and largely doing
Speaker 1: buy and hold activities. That said, got a little bit
Speaker 1: of a taste of how people react to a market
Speaker 1: crash and in a correction, and we found that our customers,
Speaker 1: because they were younger, looked at it as a buying
Speaker 1: opportunity and as an opportunity to buy into the market
Speaker 1: at historically low multiples. So we saw more deposits and
Speaker 1: more purchasing of stocks than than ever before. You're listening
Speaker 1: to my conversation with lad ten Of, CEO of robin
Speaker 1: Hood coming up. Ten of paints his picture of the
Speaker 1: future investor, not just in the US, but around the world.
Speaker 1: He thinks investing should be as ubiquitous as online shopping,
Speaker 1: but he's now got dozens of lawsuits to fight along
Speaker 1: the way. I'm Emily Chang, this is Bloomberg Studio. At
Speaker 1: one point, Oh, stay with us. Robin Hood has gotten
Speaker 1: a lot of criticism for not having enough customer support,
Speaker 1: and of course, you know, I'm reminded of the story
Speaker 1: of twenty year old Alex Currns, who committed suicide in
Speaker 1: June after seeing a negative balance of seven dollars on
Speaker 1: his robin Hood account that turned out to be a mistake.
Speaker 1: He emailed customer support, He got an automated response, and
Speaker 1: by the time robin Hood had replied UM with the
Speaker 1: actual situation, which was not as dire as he had thought,
Speaker 1: it was too late. How much responsibility do you think
Speaker 1: robin Hood bears in that situation. I think we bear
Speaker 1: a responsibility for learning from it and making sure that
Speaker 1: we respond and improve our products and our customer service
Speaker 1: model to uh prevent cases like that from from from
Speaker 1: being repeated UM, and certainly that's what we did. We
Speaker 1: announced very shortly after UM Mr Karns is passing that
Speaker 1: we are taking a series of extremely aggressive measures, including
Speaker 1: product changes, UI changes, changes how we communicate buying power
Speaker 1: and particularly negative buying power, and adding live phone support,
Speaker 1: which we started out offering for high severity options trading cases,
Speaker 1: but have since expanded to other cases like account security,
Speaker 1: UM stock trading, and the response has been really awesome
Speaker 1: and we're looking to expand it to all cases at
Speaker 1: robin Hood. So let's get to your ip O. Bloomberg
Speaker 1: has reported you're considering selling some shares directly to your customers.
Speaker 1: Can you give us the status of that. UM. Clearly,
Speaker 1: this is a business that requires capital, and I think
Speaker 1: we've we've shown that we have a variety of means
Speaker 1: to capitalize the business UM, and we see a huge
Speaker 1: growth opportunity ahead of us, and I think it's a
Speaker 1: seminal moment for the individual investor. UM. It's an opportunity
Speaker 1: for us to to serve them and to continue to
Speaker 1: elevate the individual investor in the eyes of the American public.
Speaker 1: So that that's my focus, just squarely on customers and
Speaker 1: delivering for them, and I think, UM, I think all
Speaker 1: all the other things are just in support of that
Speaker 1: core mission. You are facing dozens of lawsuits. What is
Speaker 1: your intention on how to fight these and do you
Speaker 1: have any concern that could impact your IPO trajectory. We're
Speaker 1: gonna defend the firm vigorously because we we actually disagree
Speaker 1: with the fundamental premise, and I think the facts will
Speaker 1: come out and it'll bear It'll bear out that robin
Speaker 1: Hood is a customer focused company that is operating with
Speaker 1: the highest standards of integrity and UM and will continue
Speaker 1: to do so. And if payment for order flow gets
Speaker 1: taken away, do you have another option? I mean, I
Speaker 1: think a lot of the payment for order flow concern
Speaker 1: is more or less baseless. People don't understand the details
Speaker 1: behind it, UM and so they're they're throwing up they're
Speaker 1: throwing out a lot of these accusations UM, and it's complicated.
Speaker 1: I understand that it's hard to sort of grasp how
Speaker 1: payment for order flow works. We're doing our best to
Speaker 1: try to demystify it. UM. We're doing a lot of
Speaker 1: We're putting out a lot of content on our blog
Speaker 1: and on social media that actually shows demonstrates that. UH.
Speaker 1: We believe it's it's better for customers. People get price
Speaker 1: improvement they wouldn't be able to get if we routed
Speaker 1: their marketable orders to exchanges. UM. They get they get
Speaker 1: a higher degree of certainty of execution. UM and UH
Speaker 1: and our our model basically aligns incentives and makes it
Speaker 1: so that all of our all of our market makers
Speaker 1: pay the same rate, thereby removing conflicts of interest from
Speaker 1: from the relationship. So UM I not only think it's
Speaker 1: a good model, I think it's it's an innovative model,
Speaker 1: and it's an example and probably a big part of
Speaker 1: why the American financial markets have their world leading position.
Speaker 1: It's it's that we've allowed UH innovative models to flourish
Speaker 1: and not try to regulate them out of existence. You know,
Speaker 1: I know you have big plans, a big vision beyond
Speaker 1: the basic brokerage and the features you have. Now, what
Speaker 1: are the biggest milestones ahead? What are your priorities. I
Speaker 1: think you can look at our our vision broadly and
Speaker 1: say that right now, about half of US households invests.
Speaker 1: We'd like to get that number up to plus percent.
Speaker 1: Investing should be as ubiquitous as shopping online. It should
Speaker 1: just be something that people do. UM And Moreover, I
Speaker 1: think there's an opportunity to expand that beyond the US.
Speaker 1: There's no reason why the greatest financial system UH the
Speaker 1: world has ever seen should be only available to Americans.
Speaker 1: We can, we can, we can, we can make that
Speaker 1: available UH globally, and not just to high net worth
Speaker 1: individuals and the wealthiest one percent globally, but to the
Speaker 1: mass market. UM and so I think that's a huge opportunity.
Speaker 1: All right, Glad, thank you so much for joining us
Speaker 1: A lad Ten of their Robin Hood CEO. Appreciate you
Speaker 1: taking a time today. Bloomberg Studio one point I was
Speaker 1: produced and edited by Kevin Hines. Our executive producer is
Speaker 1: Alison Weiss. Our managing editor is Daniel Culberson, with production
Speaker 1: assistants from Lauren Ellis and Mallory Abelhausen. I'm Emily Chang,
Speaker 1: your host and executive producer. This is Bloomberg