The real story behind Robinhood’s decision to restrict GameStop trading—and that 4 a.m. call to put up $3 billion

While the dust around last Thursday’s events has mostly settled, the details of what happened are still trickling out. And contrary to some reports, the clearinghouse did not phone Robinhood’s CEO, Vlad Tenev, nor did Tenev persuade the clearinghouse to change its demands.

“There were no negotiations,” said a source close to the National Securities Clearing Corporation (NSCC) who is familiar with what occurred.

While Robinhood’s CEO was indeed awakened from sleep by a frantic phone call, that call came from the company’s own operations team, not the NSCC itself.

The reason for the call was a letter Robinhood had received from the NSCC setting out its daily collateral demands. Such letters go out to around 100 brokerages at 7 a.m. ET—4 a.m. on the West Coast, where Robinhood is based—every morning, so receiving one came as no surprise.

What was a surprise was the request to post $3 billion in cash, a staggering amount even for a well-funded company like Robinhood. Ordinarily, there would be no reason for such a sum—but last week’s trading was anything but ordinary. A pitched battle between hedge funds and retail investors drove a staggering run-up in the price of stocks like GameStop and AMC, fueling unprecedented volume and volatility.

From the standpoint of the NSCC, the soaring price of stocks like GameStop created fears the clearinghouse could be left in the lurch if prices suddenly cratered. Specifically, brokerages like Robinhood might not have the capital to cover a potential collapse in prices between when shares were purchased on Wednesday and when they cleared two days later. In the same way a brokerage can ask an individual investor to pony up more cash to cover a margin call, the NSCC wanted Robinhood to plunk down more money to avert risk.

In the course of a weekend conversation with Musk on the app Clubhouse, Tenev stated that Robinhood ultimately coughed up $1.4 billion in cash rather than the $3 billion the NSCC had requested. While this suggests Robinhood had somehow whittled down the demand, the reality is somewhat different.

According to the source close to the NSCC, the lower amount came about because of Robinhood’s decision to limit trading in GameStop and other “meme shares.” By limiting trading, Robinhood would have fewer of the volatile stocks on its balance sheet while also allowing earlier trades to settle, reducing the company’s overall risk exposure. While Robinhood did speak with executives at NSCC, the conversation entailed confirming that limiting the stock sales would count toward reducing its $3 billion collateral demand—but did not result in the amount being reduced.

In response to a request for comment, a Robinhood spokesperson declined to provide information about the NSCC conversation but referred Fortune to a company blog post describing the nuances of the settlement process.

Last week’s drama between Robinhood and the NSCC is likely to produce further scrutiny of the clearinghouse and its parent company, the Depository Trust and Clearing Corporation (DTCC). The DTCC serves to centralize the settlement operations of all stocks and bonds, and is funded by banks and brokerages, including Robinhood.

While the DTCC’s activities are an integral element of financial markets, the process by which it assesses risk is not transparent. In his conversation with Musk, Tenev described the process as “opaque.”

Robinhood was not the only brokerage jolted by unexpected collateral demands. Other firms, including Charles Schwab, similarly restricted trading in shares such as GameShop last week, likely in order to reduce the cash they needed to post.

The complexity of the DTCC and NSCC process also likely contributed to conspiracy theories that Robinhood’s decision to limit trading in GameStop and other shares came as a sop to hedge funds that were losing money. Tenev has flatly denied any collusion with the hedge funds, and there is no evidence such collusion took place.

And while the events of last week led to fury at Robinhood on the part of some traders, there are likely to be few long-term repercussions. The trading frenzy resulted in the brokerage acquiring thousands of new customers, while Robinhood’s investors reportedly viewed its management of the crisis “a miracle.”

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