Robinhood Markets, Inc. ($HOOD)

Hi. Good morning, everyone. Thank you for joining us this year at JPMorgan's TMC Conference. In this fireside chat, we have Steve Quirk, Chief Brokered Officer at Robinhood. Robinhood is a $70 billion brokerage firm that offers, I got a long list here. Retail investors access to stocks, derivatives, crypto and events contract trading as well as services, including retirement, lending, credit cards, advice and banking. . So Steve has served as Chief Brokerage Officer at Robinhood since early 2022. And you previously oversaw strategy development and many of the initiatives for trading at TD Ameritrade and Thinker Swim I've got to say, I think you're probably 1 of the best acquisitions that RobinHood has ever made. So thank you to say. Thank you so much for joining here today for our third TMC conference appearance.

So I wanted to start off by maybe starting high-level market environment. So the core retail business, how do you judge the health and the behavior of client -- the client retail investor, not just from a sentiment perspective, but risk capacity staying power? And how is the volatility in the most recent environment sort of impacted your thoughts about the narrative of the health of the retail investor these days.

It's a good question. It's a question we get a lot from the media because when they picture, pure do-it-yourself retail, they look to us at Robinhood, we have 27 million -- 27.5 million customers, half of them are new to brokerage. So they are younger than many of our competitors. So the question really -- the question behind the question when they ask us the question is they probably haven't navigated a lot of the things that people who are older have navigated. And so how are they faring? And the answer to the question is they're very engaged, very sophisticated because if you think about the technologies, the avenues to education and information that are available today, compared to when I started in the business, they're just far superior. So they can become very sophisticated very quickly. And -- they also have a risk tolerance. This is going to sound like a strange thing to say. But when you're in your early 30s, you probably have at least 30 years of investing left. So your posture should be more aggressive than somebody who -- I came from Schwab, TD Ameritrade. Their average customer is around 60. You can't afford to be as aggressive at that point in your investing careers, you can be when you're in your 30s, so they're aggressive in their dip buying. It's been beneficial for the events that they've been around for. If you think of COVID, there's a lot of talk that retail kind of saved the market in many sectors. Same thing around the tariffs. Our customers were quite aggressive. We saw it across deposits. Deposits got really heavy. People are opportunistic buying in all asset classes was quite heavy, and they were rewarded as a result of it. Now does that mean they're going to be rewarded every single time? There is a dip No. But we seen some buying be tempered in some situations. So it's not like frenzy -- frenzied activity. It can be measured at times. But overall, looking at the health and we measure it a couple of ways we can look at -- we have an index that's called the RIC we created because there is a narrative that some in the industry love to perpetuate, which is retail customers buy at the top at the bottom, and we can tell them until we're blue in the face that that's not the case, but the easiest way to dispel it is to show them the data. So that's what we do. And the index takes the top stocks the top held stocks across all of our customers, $27 million as a percentage of your portfolio. So it's very democratic. In other words, if you have a $1,000 portfolio or a $10 million portfolio, we measure you the same. And then we look at that and overlay it on the indices. And in the last 2 or the 3 years, our customers are outperforming the indices, which is fantastic to see. I think it's great for all of us to see the health of a good retail customer.

Good. So I want to get into a little bit about the products that you're offering. You've highlighted products like index options, future shorting, margin, as part of the approach to pursuing the active trader toolkit. When you look across the stack, where do you see Robin Hood as having the right to win versus someone like a Schwab or an IBKR style platform -- and where do you think you're still playing catch-up? .

I think, Robinhood, we're kind of in a unique position. When I competed with Robinhood, I marveled at Robinhood's ability to attract the next generation of investors. We were all very candidly, all of us legacy "legacy brokers. We're saying we need to figure out how they crack the code and getting this many customers in the door in 4 or 5 years, and it took us 6 decades to get this number of customers. But at the same time, we also knew that Robinhood at the time didn't have a complete offering. So there was a graduation risk, right? So it's kind of -- we're racing e-racing. And so that's what made it really exciting to come to Robinhood was because you get the opportunity to sort of reimagine building everything with a blank canvas for people as they move up in terms of sophistication and in terms of the amount of wealth and what they're looking for. And that's been really fun to do. As much as there's differences with the way that people invest, example when I started, there was nobody starting in crypto and moving into equities and other things in ETFs, like today, super common. Event contracts Sure. I get into event contracts. I learn what else you do in the market. Those avenues didn't exist in the past, but also just the technology. The technological advances, the idea that 90-some percent of that is being done on a phone and being done around the clock is really quite cool. So what we've been focused on is just filling out the offering. And a lot of the things that you just named were some of the most frequently asked for products, whether it's index options or futures, all these asset classes or account types that are necessary for people to be able to participate fully because they're sort of graduating up the curve in terms of their level of sophistication, even retirement accounts. We didn't have retirement accounts till a couple of years ago, and now it's become quite large, but there's still so much more to do here.

So you're having product launches, it feels like every 3 or 4 months. And 1 of the latest ones that you invited us to was take flight back in March. And 1 of the products or services you announced was portfolio overview. And that links the Robinhood account view with external accounts. And it seems to me like it presents a pretty compelling cross-sell opportunity. Provide us with an update on the offering. And in particular, we understand that Robinhood is going aggressively after what I'll call the Achilles heel of the traditional banks and the brokers that offer a low yield on customer cash. And you've got a pretty compelling cash offering. So talk about how you're leveraging things like portfolio overview to go after new customers at your legacy competitors?

So at the core of -- well, I mean, the core of Robinhood's success has been in self-directed to it yourself portion of the market. And now we're the #1 player across a couple of asset classes. We'll be the #1 player in the next couple of years. But what we've heard loud and clear from our customers is as they move up in terms of level of sophistication, number of assets, account types. We need to continue to expand our offering and even give them some help in their investing. They might not feel comfortable investing the amount of money that they're now starting to earn completely self-directed, so they may need help. The avenue to doing that was to build out the products. We have something called strategy, which manages portfolios for them. Deliver cash sweep, which we have a very powerful cash sweep, which pays a very competitive rate and then deliver a complete wealth management solution, which we're a month away from rolling out a referral network on, but in order to capitalize on that, it's helpful for customers to share with us where their other assets lie. And then we can point out to them where we have superior offerings either in terms of pricing or capabilities and that they would be advantaged to move those over. So we're in the early stages of it, and we're still rolling out the capabilities like the referral program, but when you pull all those things together, you can see that it becomes quite powerful. And the opportunity for us is quite large. It's 2.5x the size of addressable assets in the wealth management side is on the self-directed side and we haven't really touched that yet. And I would argue not to be judgmental, but there isn't -- I don't think there's been the advances on the wealth management side that there have been on the self-directed side both from a product or a technology standpoint. And I think that's where we excel.

Is the Achilles heel really the yield on cash that you're getting at firms like Chase and Schwab and others?

Well, The reason why it's the Achilles heel is we have $345 billion in assets, and they have trillions. So there's a lot to attack there. There's a moat and if you have been on the inside of the moat, you kind of know where to go.

Talk to me a little bit about international expansion. You've been in the U.K. and the EU for about 3 years, maybe how are these markets different than what we see in the U.S.? And then separately, you acquired an Indonesia brokerage and recently announced approval in Singapore. Talk to us about Europe versus Asia.

Sure. So our first foray is a little over a year ago in the U.K. outside of the U.S. And having been involved in international businesses before when we were having conversations with [indiscernible] the executive team, there's been a -- if you go anywhere in the globe, there's a Robinhood of whatever country, whatever region. And we said we should be the original. I mean that's what they're really looking for a replication of Robinhood in the U.S. And so we put our flag down in the U.K. and then eventually went to Singapore, where we have principal approval and then bought a firm in Indonesia. What makes Indonesia so interesting is the population. It's the fourth largest population, and it's very young, very young and very progressive, and they're sort of on the upswing, and they have, I think, 22 million registered, they have to register crypto investors. And I don't know what the number is on the traditional brokerage, but it's quite large. So -- and there aren't a lot of competitors there because it's too much in its infancy. We excel in places like that because we have -- we're technology first, and we can do things in a super efficient manner and deliver content and education to them so that they can do things in a suitable manner. But I think overall, the thought process with internationally is, look, retail is a complete force in the U.S. we're at 60% of U.S. households now participating, that's the envy of the world, no matter where you go, Europe, Asia, anywhere, they're in the teens or lower with U.S. households participating. But I think it's going to take time because in order to get that movement going, you have to start an education and awareness, we'll open doors, and we're really good at doing that and removing the friction and opening the doors for people to be able to get into markets and understand the power of being able to invest in markets. But I think what I'm most enthused about both here and abroad is just what's happening with retail overall. And if you look at retail percentages of equities of options of crypto of even IPO, all across the board, the participation continues to grow. And I know there are a lot of people that assume that this was a COVID thing or something that was going to be episodic. I never believed it because it for as long as I've been in this business, which is a long time, it's been growing. It just has had some accelerations due to events. And so that, to me, is the most interesting part of this because as much as it's growing like this here, it's going to happen abroad. It might take a little longer, but we're going to see a global marketplace and participation across the globe is going to be really strong.

So let's move to predictive markets, Rothera. Robinhood JV with Susquehanna is expected to launch imminently. Can you walk us through why the vertically integrated tech stack is better for Robinhood's customers trading predictive markets rather than Robinhood's previous brokered approach with Forex and Cache. Is this really about economics and better monetizing the customer base? Or is there an element of control and being able to move faster more flexibly than you would otherwise.

Yes. Maybe I'll give you the history of how we entered the space. We were actually building futures trading and coincidentally, when election contracts became permissible. And so we started with the presidential election. And at the time, we were going through forecast tax, which is Interactive Brokers prediction market exchange -- and we saw the interest. I think we had half of our 600 million contracts and 800,000 accounts opened. It's tremendous interest. And then that started to expand. And so we started a partnership with [indiscernible] as well. We never like to beholden to 1 exchange. It's not a comfortable position to be in. So we like flexibility, but what we came to realize is we are the dominant distribution platform for event contracts. And we were also partnering with the dominant market maker there, which is Susquehanna. And by coming together and creating our own exchange, it gives us the freedom to drive product development to drive who liquidity providers are and to drive the economics and the experience for our customers, which is going to be beneficial across the entire spectrum. I think the other part that is really opportunistic is we're creating an ecosystem with the largest players. And so we're going to attract even our competitors there because that's going to be an ecosystem where they're going to have superior experience across the board.

Maybe moving to the Superapp. Robinhood talks about its ambitions to be the financial super app. So how does this concept of the Superapp UX goal impact your approach to product development and entry into new markets. And then ultimately, at the end of the day, does being the super app mean that you need just 1 app across all of the services -- or can you do it? Can this be the super app and you can have different icons on something like yourself?

We spend so much time on this just because think about it, there's a tremendous value. I'm guilty of this myself. I would like to have as much of my financial universe in 1 place as possible. I don't want multiple apps if I can avoid it. But there are constraints, right? I need capabilities and I think the technological advances that are happening and happening so fast, and we are on the cutting edge of our promising is. I use this use all the time, like if you would have told me 10 years ago in my career at the largest option trading retail firm on the globe would be doing 99% of their trading on a mobile phone? I would have said you're crazy, can't happen, and it's happening today. So I don't think I think the advantage of having everything in 1 place is solvable. And Robinhood, we really excel at design. That's 1 of the things that we're regularly lotted for. So -- so I think we can do it all in 1 place. The value of that is I can be in 1 place and do my banking, my credit card, I can do my crypto investing equity investing, even my retirement and everything in 1 uniform place and see it all in aggregate.

So at the end of this fireside, I am going to open up to Q&A probably in 10-ish minutes. So if you have questions or don't have questions, think about them, we'll send the mic around. Maybe moving to regulation. So the SEC just removed the $25,000 pattern day trading minimum for small accounts. How big a deal is this for Robinhood? .

It's a really big deal, and we've spent a lot of time lobbying both FINRA and the SEC on this because Robinhood's customers were impacted in a way that other brokerage firms weren't. The average account size is much smaller. Robinhood, this rule is 1 that materially impacts accounts that are under 25,000. And it's very confusing for customers. The rule was put in place with a good reason, around 2000 when the day trading boom because the risk management systems of both brokerages and clearing firms couldn't keep pace with the trading activity that was happening. So the rule is put in place to protect customers.

And what is the role?

Well, the simplest version is 4 trades in 5 days, which A lot of customers when we're explaining it. They just think they get a scarlet letter they don't even know why. And their only move to get out of this thing is to basically go to another broker. So they eat out and go to another broker and start fresh. And we know where all those people want, which is helpful. So that rule is being amended, and I think the date is June 1, which is the implementation date. So all the people that have been impacted by that and picture yourself, you're basically stuck in a position where you know if you make 1 more trade you're going to be flagged and materially impacted from doing anything. So you're sitting in a position that you don't want to sit in and I commend the regulators for understanding that this rule was well past its useful time. And so we're now in a position where that rules can be gone. And we have an opportunity to talk to all the people that love Robinhood, but couldn't be here because of this rule. And if you think about the impact of that, many of our competitors' accounts are much larger. So the impact to their client base was much smaller than the impact of ours.

Yes. And the average account size at Robinhood is 13,000. .

Yes.

Okay. And so this would have 2 impacts. One is a trading activity impact and the other is a customer retention impact.

Or retraction impact.

And retraction impact.

Yes. because we do ask people why they AAT. And I mean we do get responses from many of them.

And the conclusion is pretty big deal for Robinhood.

Yes, Chris will kill me if I tell you how big of a deal, but it's going to be very positive. It will be a very positive development.

As we think about wrapping up, if we fast forward 5 years, what's your bet on what retail brokerage means for investors, investors at Robinhood, -- is it still mostly trading in 5 years? Is it more about banking? Is it about social engagement, portfolio construction, advice, cash management, like seems like Robin could and the business can go in a bunch of different directions or maybe go in all directions at the same time. What is -- what do things look like for Robinhood if we go out to the investable limits for us here today? .

I think the thing that connects all of the items that you just talked about is technology. Like it has an ability to connect all these things in a way that is so unique and makes it even more frictionless for customers to be able to move from 1 asset class, 1 time frame, 1 account type, 1 advisory service whether that's partially automated or in human hands back and forth. And I think the expansion of that, the collision of technologies like tokenized securities, round-the-clock trading, which is already here, but now it's going to be on weekends for other asset classes. And then the global aspect of it is going to make this is where the super app really comes into play. Being able to accommodate all those needs in 1 place and with a frictionless experience on a phone, if desired, 24/7 is amazing. I mean, if you look at the news that's driving the markets today, not happening during the average trading day. It's happening on weekends or in the after hours. Some of our biggest nights, we have 24/5 trading for equities. Our biggest nights or Sunday nights because you build up a bunch of demand over the weekend with all the news that's happening and we see really strong volumes at 8:00 p.m. when the market opens.

So you sit in the intersection of product, market structure and regulation. What are the 2 or 3 decisions that you'll have to get right as you prepare the business for the next 5 years.

I think it's -- we have a really, really, really strong legal and government affairs team. But a lot of them are x regulators. And so we have a really strong relationship with elected officials and regulators, and that's really important because it's even more important today because of how quickly things are moving. Think of AI and the use of AI and how it's being used in -- even in brokerage and in financial services, -- and we're uniquely positioned to help them understand we're a scale player on the crypto side. We're a scale player on traditional brokerage. We're a scaled technology firm. And we're also global. So -- we have a unique perch to be able to help them understand where this market is going really quickly and what they need to do to make sure that they navigate it in a way that's going to be beneficial for customers and that there isn't going to be customer harm. So I think the opportunistic self of miss -- this is a really cool time to be able to influence where this market is going to go with things like tokenization with things like all the things that are being discussed collaboration between the CFTC and the SEC with respect to event contracts that could be securities. We are in both -- we're regulated by both, and we understand well what these products look like. Do we have a preference where they get regulated? Sure. But ultimately, do we care? No, no, we're not on 1 side of the fence. This is what makes us unique. We're not a CFTC only shop. We're not a SCC-only shop. -- regulated in crypto. So we can be helpful as they think through these. And these are kind of sticky problems for them. .

So Robinhood is a, if not the market leader in your core business of options and equities, you're diversifying asset classes, you're entering new geographies in the scope of a competitive market that's broadening, particularly as regulation emerges and welcome new players. How do you see the competitive landscape shifting as the regulatory landscape evolves? I think it -- and is it different in the U.S. versus outside the year? .

Well, the 1 thing that I would say that's been very welcome is an acknowledgment that if we don't get it right, things will just move overseas, which they did during the last administration in crypto. Basically, everybody just went overseas with everything that they were doing. And we were kind of hamstrung for a period of time because we're heavily regulated, and we want to make sure that we're not trying to circumvent regulation. We were actually asking for it. So I think what we have to be careful about when I'm talking about globally is regulatory arbitrage and making sure -- and look, if you look at the destinations we picked as our first destinations overseas, they're the strongest regulatory regimes in the world, the U.K. Singapore, these are strong regulatory regimes. That's by design. Like we are telling the world that we're not trying to circum that regulation. We will embrace regulation. We just want clear regulation because -- it's hard to navigate a world where there isn't clear regulation. So we're just trying to help them with the framework of that. But I think there's going to be some really cool opportunities across asset classes and across technologies that we can be at the forefront of.

Okay. So let's call it there. If there's any questions, raise your hand, and we'll bring around a mic and just introduce yourself.

I'm Nick Sertl with ThornTree Capital. Back on prediction markets, maybe just looking at sports betting operators have always had a lot of churn. So how as you invest in this category, do you think about churn and how that impacts like the entirety of the business?

I think about it Well, first of all, I think -- and I know there's been a lot of conversations about it, and it hasn't happened yet, at least if you look at like Cash volume or others. But the way we picture these event contracts is we're in the very early innings of all the categories where we're going to see these contracts. And sports is 1 category. But I think you're going to see an expansion of categories across things that look closer to securities, which is our core business. And so that's one of the reasons why we're standing up for there because we want to have control over how this is -- how we navigate the landscape and roll out the products. With respect to the question on the churn, we look at that, and we haven't seen meaningful churn. The question we often get asked is who's using these who is using this? Is this your core customer? Is this somebody who's only using these? Is this somebody who's a crypto enthusiast as well. It actually spans. It's completely different across different segments. Election contracts are different than whether or different than economic indicators are different than sports. And it tends to resurrect people and then they'll come into the other asset classes as well.

Great. Any other questions Okay. I'm going to stick one more in. So there's a number of highly anticipated mega IPOs that are expected later this year. So SpaceX, open AI, anthropic, et cetera. What do these deals mean for Robinhood? How do you participate? How do you allow your customers to participate? And what is their participation ultimately mean for the P&L?

So the way that we let them participate directly is a product that we have called IPO access. In the history of IPO access because it's been around for a while is -- and this is kind of goes back to my earlier comment about the rise of retail. We used to -- I think we're 40-some IPOs that we've done, we participated in given customers access when they've expressed interest -- we used to scratch and kick to get 1% or 2% of the allocation and be happy with it. Today, we have companies that are coming to us and saying, we want to -- I think we were 20% of bullish they came to us and said, we want retail is an important component here. Our customers tend to hold I think my numbers don't quote me, I think it's like 60% or 70% after a couple of months are still holding. So they're fans of these companies. They're not flipping these IPOs and so I think that resonates with these companies as they come out. We also show them what our demand is when they give us an allocation. And in many instances, we could have taken the whole thing. Our customers could take the whole thing. So there's strong interest there, and it's something that I think resonates with the issuing -- with the companies and the underwriters. The other thing I'd say is it also builds into our entire ecosystem of securities lending and everything else because these often become hot names on the securities lending side, and now we have all kinds of inventory. So it's kind of a nice flywheel for our business and for our customers.

Okay. Great. We have a couple of seconds for a quickie question if there is one. Otherwise, we'll wrap there. Last chance. Okay.

Thank you.

Thank you very much.