Webull CEO: Here's why Robinhood is restricting users from buying stocks like GameStop

Webull CEO Anthony Denier joins Yahoo Finance Live to discuss how heavily shorted stocks are faring this week and break down why Robinhood restricted its users from buying surging stocks like GameStop, AMC, and BlackBerry.

Video Transcript

AKIKO FUJITA: The wild swings that we have been seeing in the markets brought on by retail investors, stocks have seen huge gains, including GameStop. And Robinhood today reversing-- or GameStop reversing course today after those brokers restricted trade on that we are also getting reports that Robinhood has reportedly been hit with a lawsuit over the removal of GameStop and that lawsuit seeking a class action status filed in federal court in New York.

Let's bring in the CEO of Webull, Anthony Denier. And Anthony, your platform also among those that's restricted trade for the likes of AMC, as well as GameStop. We were talking about Alexandria Ocasio-Cortez now jumping in on the debate, saying that she would be for a hearing in this if it's necessary. Why restrict the trade, and what led to that action?

ANTHONY DENIER: Well, it wasn't our choice. Our clearing firm gave us a call and said we're going to have to stop allowing new opening positions in the three names, AMC, GME, and KOSS. Highly volatile, and what happens is this is not a political decision. And unfortunately, it got political. I think, you know, I think it was once said that don't let any good crisis go to waste. And that's clearly what's happening here.

And we're seeing politicians jump on the bandwagon so they can get-- so they can start trending on Twitter. But in reality, what's going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. And because of the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive.

And we just can't afford-- well, we're not a clearing firm, but our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it. And they simply can't afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar-- smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market.

ZACK GUZMAN: Yeah, Anthony, thank you for clarifying that, first of all. Second of all, it is, I guess, interesting because, you know, these moves had been here, at least in the case of GameStop, for a while. We had the CEO of Robinhood on yesterday kind of talking about why they were taking a different tact and not restricting trading because, you know, they wanted to leave it to their individual retail investors to make these decisions. Didn't want to step in and fuel into the nanny state idea.

But what about maybe curbing this a little bit earlier? Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that?

ANTHONY DENIER: Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions. Liquidations can happen at any time. This is general market mechanics. We have customer protections in place. We would never stop a customer from being able to get out of a position. But currently, we are stopping customers from getting into a new position. And that has to do with it possibly.

ZACK GUZMAN: Yeah, I didn't mean to indicate that you guys wouldn't let people exit positions. But the idea that this was running up or that this was looking a little frothy, people were talking about this on Monday, when we saw GameStop start to move. I mean, what about the speed in which you addressed these things? Was this something that maybe the clearing house had raised or, you know, people were discussing what we should do about this leading up to Thursday?

ANTHONY DENIER: Yeah, I mean, it was being addressed. It was being spoken about. But when the stock started getting up to these multi $100 levels, I mean, if you look on Monday, GameStop was trading below $100. And now it's trading in several hundred dollars. So the cost of clearing those things have gone up by 3x overnight. So this is something in real-time that we have to deal with in real-time.

AKIKO FUJITA: Anthony, Webull, of course, your platform, has been a big beneficiary of the growth in retail investment over the last year or so. When we spoke to Vlad Tenev, the co-founder of Robinhood, yesterday, he said that part of that growth was also about investors really being sick of being talked down to from the institution, that increasingly, individual investors were feeling empowered. And I wonder if you agree with that statement. How do you think the profile of your user has changed over the last year?

ANTHONY DENIER: Yeah, I listened to that interview as well. And I think Vlad did an amazing job speaking for the industry, right? And when I say industry, I mean new brokers like Robinhood, like Webull, that reduced and tried to remove as best we could all barriers for entry. Nothing rings true, and we've been saying since day one from the moment we launched, we think that every investor should have an equal opportunity to have access and have the best tools available so they can make the best investment decisions and go on their financial journey. He's been a great spokesman for it, and we support that 100%.

ZACK GUZMAN: And you guys were getting applause, too, because you could still move over and trade on your guys' platform up until recently, too, when we're talking about GameStop and AMC. So what kind of a boost did you see in maybe new signups through all this?

ANTHONY DENIER: It's been a busy few days, to put it lightly. To give you some context, when Robinhood stopped trading of some of the Reddit names this morning, there was a huge influx of brand new customers to our platform. Our app actually went from, I believe, number eight yesterday to number three in the overall app store was where it peaked. Really cool times.

I told all my team this morning, remember this day. Stay focused, stay sharp because in 10 years, you're going to be talking about this and telling the people that are working under you, you know, you were there for this, and you were part of it. So, a very unique time. We did see a huge influx of applications. And we continue to see them now, even though we did stop trading of the Reddit names at about 11:00 AM Eastern today. But it does open up Webull as a platform to new users, and they can see the benefits of Webull.

AKIKO FUJITA: Anthony, you said earlier that this discussion over what has materialized in the markets over the last several days has turned political. No question we've seen lawmakers weigh in, whether that's Senator Warren or AOC. You heard yesterday the White House Press Secretary saying that the Treasury was looking into this as well. There's going to be some kind of regulatory discussion that's likely to come out of this. What do you think the focus should be? Is it going to be on the hedge fund side or you think on the retail side?

ANTHONY DENIER: I think a little bit of both. It has gotten political. If we look at this story over the course of the week, it turned into a nostalgia buy into a movement against the establishment, i.e. hedge funds. And now it's even morphed again. It seems like a coronavirus, constantly mutating into now a political scene. The regulators are going to be involved.

And, you know, when we see all the halts going on in the market, we see brokers stepping back due to cost of clearance to actually trade these things. There is an outcry because a lot of the retail, they don't actually understand the dynamics that happen after a trade. I think when you say the regulators stepping in, it will happen on both sides. It's going to happen on looking into should a hedge fund be allowed to get a 10 times leverage and short 140%, 150% of a company. Should that be allowed in a regular-- you know, in a healthy market.

And then, on the other side, should it also be allowed to have mob and herd mentality of rolling into stocks? And should these things be curbed? Look at the examples that happened overnight in Australia, where a mining company, GME in Australia, was up 100% overnight because people just blindly went in on anything GME without reading below the headline.

ZACK GUZMAN: Yeah, well, clearly a very busy day for you. I appreciate you taking the time to hop on with us. As always, a friend of the show, CEO of Webull, the CEO of Webull, Anthony Denier, thanks again for joining us.

ANTHONY DENIER: Thanks for having me on.