TL; DR Breakdown
- Robinhood CEO makes the case for faster payment settlement.
- He seems to indirectly advocate for DeFi.
A top executive at Robinhood thinks the trading market would do much better if payment settlements were faster and real-time. This comes days after Robinhood was forced to suspend trading for GameStop, AMC and a few others due to lack of ready cash to settle the trades quickly.
Following the suspension, users – especially Reddit-users – were furious. A lot of people called out Robinhood for trying to shield the rich from running into losses while blocking other traders from earning from a fair market. In a twitter thread, Robinhood’s CEO Vlad Tenev expressed his frustration with the events that led to the suspension, putting the blame squarely on the lack of a faster way to settle payments.
The clearing house is a disappointment
Tenev didn’t spare his words in pointing out the clearing house for trades is the reason the market run into issues a few days ago. Apparently, as he points out, the clearing house takes two days to verify trades, a clearly long duration at a time when the market is super-active. A clearing house is an entity that acts as the intermediary between the buyers and sellers. As such, the entity is responsible for transferring payments and closing trades.
A slow clearing process, as argued by Tenev, could lead to a cash-strap moment on the part of the platform like Robinhood where the trades are made. Robinhood was forced to borrow money from banks to continue handling trades for the affected stock options. Currently, the clearing process is supervised by the Depository Trust and Clearing Corporation in partnership with the US Securities and Exchange Commission (SEC). The process to clear any trade takes two days.
“I think there was legitimate sort of turmoil in the markets. Like, these are unprecedented events with these meme stocks, and there was a lot of activity. So, there probably is some amount of extra risk in the system that warrants higher requirements, so it’s not entirely unreasonable.”
-Robinhood CEO Vlad Tenev
Real-time settlement is basically DeFi
Tenev went further to advocate for a faster clearing method in a blog post posted for Robinhood. He referred to the current system as antiquated. By demanding a better payment settlement system, Tenev seems to indirectly advocate for DeFi (Decentralized Finance). DeFi has revolutionized the way payments are settled on finance-related platforms. The CEO might have not realized it himself at the time, but his demands would definitely have come across as advocating for DeFi.