[HN Gopher] Why Robinhood disabled buys but not sells
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Why Robinhood disabled buys but not sells
Author : stu2b50
Score : 481 points
Date : 2021-01-31 15:55 UTC (7 hours ago)
(HTM) web link (stu2b50.dev)
(TXT) w3m dump (stu2b50.dev)
| PragmaticPulp wrote:
| Everyone assuming a conspiracy theory needs to read this.
|
| Keep in mind that Robinhood also gives everyone a margin account
| by default. They also let people invest on margin before their
| inbound bank transfers arrive (Robinhood Instant). The influx of
| new traders sending money to Robinhood or selling other stocks to
| buy GME quickly drained their credit lines, reducing the capital
| they had available for collateral.
|
| Keep in mind that when someone sells a different stock to buy GME
| in the same day, they're buying GME on margin. Stock trades don't
| settle until T+2, so any new purchases using those proceeds are
| done on margin.
|
| This was a capital crunch at Robinhood due to an unexpected herd
| of new traders all looking to do the same thing in unison. It
| violated the assumptions of their business model, and the only
| way to keep the platform from grinding to insolvency (or
| violating regulations) was to slow down the unexpected event by
| slowing meme stock purchases.
|
| Is it really so hard to believe that such an unprecedented mass
| movement would break the underlying business assumptions of a
| pre-IPO startup that was heavily dependent on their credit lines?
|
| The biggest problem is Robinhood's poor messaging. It's clear
| their highest priority was to avoid admission that they were
| running out of money. They didn't want to trigger a bank run or
| shake the confidence of their newly acquired users, so they tried
| to obscure the message as much as possible. As a result, the
| popular narrative assumed some sort of evil conspiracy theory.
| gulikoza wrote:
| It's not just RH that has disabled buying, other brokers have
| as well. Most notably IB and Trading 212 (which uses IB) with
| the IB CEO going on TV telling how that benefited them. There's
| clearly more going on than just some collateral bullshit that
| RH is spewing...
| dalbasal wrote:
| There's a little more depth to this. It's not just an influx of
| users or the margin they provide to fund accounts before user
| money arrives to RH's bank account.
|
| Clearing houses, and clearing houses' clearing houses' have
| raised capital requirements for buying gme from 1%-2% to 100%.
| This has to be the brokers' capital. User capital doesn't
| count, so it doesn't matter that a user has fully paid for the
| share. This is unintuitive, but CEOs of several brokerages have
| confirmed.
|
| That may let RH off the hook (even they they could have
| borrowed easily, to cover fully paid, unleveraged purchases),
| but it does push the "conspiracy" question downstream. Why did
| clearing houses make this call? After all, it's not RH's that's
| liable to be unable to pay. They've already paid.
|
| At this point, there are enough credible reports confirming
| that clearing houses have been shutting down, or trying to,
| memestock buys at client brokerages. They probably do have
| market integrity reasons for doing so, but the specific
| mechanics are unclear.
|
| Also regardless, this is a decision that changes the
| game/rules, affecting winners, losers, outcomes. Who was the
| power to make these calls. I guess it isn't a regulator.
|
| Meanwhile, RH and other brokerages are responsible for whatever
| misunderstanding and conspiracies happened. " _Because the
| stock is volatile and we 're protecting our customers from
| volatility_" is a naked lie. Start with a lie, and people will
| assume the worst.
|
| FWIW, I think it's telling that the CEO of Robin Hood was
| willing to imply liquidity issues to avoid talking about market
| makers or clearing houses. I don't know what it tells, but I
| guess we'll find out in the coming weeks.
|
| One thing that always comes out of these scandals is some
| insight into the wall street "infrastructure."
| sumedh wrote:
| > Clearing houses, and clearing houses' clearing houses' have
| raised capital requirements for buying gme from 1%-2% to
| 100%.
|
| Was the requirement raised 100% in the past for other stocks.
| awillen wrote:
| The problem is the CEO specifically said they did not have a
| liquidity issue. That means one way or another, he's a straight
| up liar.
| fnimick wrote:
| Read between the lines. They didn't have a liquidity issue
| after they disallowed the buying of stocks that had the 100%
| capital requirement from the clearing houses; hence, they no
| _longer_ had a liquidity issue.
| callalex wrote:
| That is still lying by omission. I'm really curious what
| motivates you to defend these liars?
| gkoberger wrote:
| I don't think there's a conspiracy, but I also don't think they
| get a free pass on this. They're going to lose much of their
| base, and they deserve to - if your whole thing is retail
| traders, and everything stops working when it matters most,
| then people are going to look elsewhere.
|
| The CEO lied on TV about the reason, there's rumors that their
| investors asked them to stop it (I mean, they got $1Bn
| relief... of course it was at least a topic of conversation),
| and they make a ton of money ($100M/Q I've seen) from one of
| the big players in this (Citadel).
|
| I'm not saying there's a conspiracy, exactly... but I am saying
| when it came down to making hard choices, it doesn't take a
| full-blown conspiracy for them to make some of the decisions
| they made that erred on the side of benefiting institutional
| investors.
|
| All their cash (via both raising capital and selling data to
| funds) comes from institutional investors rather than average
| retail investors, and that was recently made clear to a lot of
| people.
| Spooky23 wrote:
| It's in Robinhood's interest to speak in ways that indirectly
| support the conspiracy message.
|
| They don't get implicated in the conspiracy statements, but
| benefit from attention seekers like the Barstool guy
| screaming and hand waving. That distracts from the pretty
| obvious reasons why Robinhood is an awful and dangerous
| business and business model.
|
| Now the mob is moving on to crypto and other scams, so the
| Robinhood PR strategy is perfectly executed and frankly,
| genius.
| fortran77 wrote:
| > _Robinhood is an awful and dangerous business and
| business model._
|
| That's why I scratch my head over this. It's not difficult
| to open a Vanguard or Fidelity account and be able to get
| better pricing on retail trades, even if you're paying a
| little up-front for certain trades. Nobody who's trying to
| invest in the stock market can sincerely believe the
| Robinhood trades are "free."
|
| And Fidelity (for example) allows for other things that
| Robinhood can't. You can choose to lend your shares for
| shorts:
|
| From https://www.investopedia.com/fidelity-vs-
| robinhood-4587945
|
| > _Fidelity can also earn revenue loaning stocks in your
| account for short sales--with your permission, of course--
| and it shares that revenue with you. Fidelity tells us that
| for two months of lending certain hard to borrow
| securities, 38% of accounts earn $100 or less, another 37%
| earn between $100 and $1,000 and the remaining 25% earn
| over $1,000. Robinhood retains all the income it generates
| from loaning out customer stock and does not share it with
| the client._
| Spooky23 wrote:
| They are just another discount broker, except they
| attract unsophisticated newcomers with growth hacker
| bullshit, accomplished by offering margin trading their
| customers don't understand.
| thr0waway2 wrote:
| That's kind of how markets work though - when things are
| going most in your favour it's hardest to capitalise on it as
| price going your way means few people want to take the other
| side. And there's more things going into a price than just
| forecast of future prices - there's also liquidity, credit
| risk, operational issues, etc.
| 762236 wrote:
| They get a free pass from me. They behaved as expected (thus
| predictably), and saved their company. There has to be a
| feedback loop that limits Robinhood's (and any company's)
| abilities to handle meme trades. I didn't need any
| explanation from the CEO, because what was happening was
| obvious to me (and I know nothing about finance --- only that
| money isn't free and that there has to be a feedback loop).
| sidibe wrote:
| "I don't think there's a conspiracy" followed by hints of
| conspiracy.
|
| I think Robinhood didn't do anything wrong (or even
| incompetent), but they are screwed because the prospect of
| losing money (actually just the potential of more money, they
| haven't lost any yet if they close now since the mania isn't
| done) is emotional and triggers outrage and a need for
| someone to blame.
| colllectorof wrote:
| _> I think Robinhood didn't do anything wrong (or even
| incompetent)_
|
| Sure they did. The CEO of Robinhood went onto CNBC and lied
| about why they restricted trading.
|
| https://www.msn.com/en-us/money/companies/robinhoods-ceo-
| den...
|
| Also, here is their history of _other_ recent fuckups:
|
| https://www.cbsnews.com/news/robinhood-sec-fine-65-million/
|
| "Robinhood Financial fined $65 million by SEC for
| misleading users"
|
| Stop making excuses for liars.
| loceng wrote:
| It's amazing to me there isn't a system that we can
| automatically pull from, of trusted channels, that will
| bring into view these more "hidden" narratives - that get
| crowded out by the current mainstream media and
| journalism trying to respond quickly without doing their
| homework or with doing more quick reads that keep to a
| narrow scope of a narrative instead of a longer read that
| requires attention, which in fact will quell the reader's
| excitement or over excitement - likely leading to less
| viral sharing due to losing readers who aren't patient
| enough to read more thorough content.
| twothamendment wrote:
| "It's amazing to me there isn't a system that we can
| automatically pull from, of trusted channels..."
|
| I like it, but who gets to decide which sources are
| trusted?
| loceng wrote:
| Whatever network(s) or leadership within the system you
| subscribe to.
| adventured wrote:
| The people visiting the service decide that for
| themselves; they decide if they think the provider is
| trustworthy. You personally have to trust the person /
| people deciding which sources on a matter/story are
| trustworthy. It's a chain. That trust gets built up over
| a long period of time ideally, starting typically from a
| very modest beginning. It's worth noting that sources are
| often not consistent, they can be trusted on one thing
| and then get another thing wrong, so it certainly won't
| be a simple matter of dictating that This Source is good
| and That Source is bad (for everything).
|
| More challenging than earning that initial trust, is
| maintaining it, not allowing a perversion to occur over
| time (where the service becomes biased, irrational). For
| every service that gains initial trust, most inevitably
| lose it over time; keeping it long-term is far harder.
| [deleted]
| FabHK wrote:
| > The CEO of Robinhood went onto CNBC and lied about why
| they restricted trading.
|
| I'm sorry, but it is a fact of banking that you can
| never, ever, admit to having liquidity issues. If it
| triggers a bank run, then the firm is dead, and, notably,
| not only the employees and managers of the firm suffer,
| but also the clients; and they suffer more than if the
| run had not happened. So, what you portray as a huge
| nefarious plot here is just a CEO of a startup trying to
| keep things going until they calm down again (which,
| incidentally, seems to have worked).
|
| Next, the other issue with the $65m fine. As it happens,
| this has been discussed in depth by Matt Levine in his
| excellent "Money Stuff" column [1], and it's not quite as
| nefarious as you portray it either.
|
| Brokerages make money from a couple of sources: 1)
| interest on customers' cash balance (which they might
| pass on or not), 2) borrow fees from lending out stock to
| short sellers, 3) commissions, and 4) payments from
| market makers for order flow [2], which basically
| constitute a discount on the bid-ask-spread.
|
| Most brokers used to charge commission (3), but passed on
| most of the discount (4), giving clients a very good bid-
| ask-spread.
|
| Now, what Robinhood did is charge less commission (3)
| (namely zero), but keep more of the discount (4), giving
| clients a worse bid-ask-spread.
|
| Now, obviously, if you have small orders, you're better
| of with the Robinhood model of smaller fixed cost, and a
| somewhat higher (and hidden) proportional cost, namely a
| higher bid-ask-spread (ie slightly worse price).
|
| But for customers with big orders, a different broker
| with a small fixed fee, but a better discount = smaller
| bid-ask-spread = better price might have been better.
|
| (Note, btw, that everyone got prices equal to or better
| than the national best bid offer! It's just that you got
| more or less further discount on top of that.)
|
| I agree with Matt Levine that Robinhood had a compelling
| offer, and should have just positioned it a bit better.
|
| But again, that $65m fine was basically for not telling
| big clients that btw, with your size you might be better
| off at the competition where you pay a fixed fee but
| might get a better price. Yeah, not exactly Mother
| Theresa, but hardly egregious.
|
| There really really is enough disgusting rent seeking
| going around in the financial sector (student loans,
| payday loans, credit cards & merchant fees, HFT, ...)
| that you should save your ire for that.
|
| [1] section Robinhood(1) https://www.bloomberg.com/opinio
| n/articles/2021-01-07/the-ip...
|
| [2] market makers pay for retail order flow (aka "dumb
| money") because it tends to be small and uncorrelated and
| "uninformed", ie not specially predictive on price
| direction; so they like it better than institutional
| "informed" flow which might leave them with positions
| that lose money subsequently (adverse selection).
| However! As this episode showed, retail money might not
| be small and uncorrelated and uninformed anymore, so
| we'll have to see how that shakes out - I as a market
| maker wouldn't want to pay brokers more for sending the
| WSB hordes my way instead of hedge funds.
| gkoberger wrote:
| That's my point. I don't think there's a conspiracy, where
| the CEO of Wall Street called the Robinhood CEO and said
| "shut it down now" and they did.
|
| Rather, I think everyone acted in their own self-interest,
| and a lot of random retail investors found out that their
| best interests were the only ones that didn't align with
| everyone elses.
|
| A lack of a conspiracy doesn't mean the results were any
| different.
| ac29 wrote:
| > Rather, I think everyone acted in their own self-
| interest
|
| Read the article. Robinhood arguably acted against their
| own interest, since they get paid for order flow (and
| telling customers they cant execute trades they'd like to
| make wont be good for customer retention either).
| Robinhood acted in a way that was contractually required,
| according to formulas set up long in advance of any of
| the latest market action.
| np- wrote:
| Sometimes you're caught between a rock and a hard place.
| That doesn't absolve you of the direct consequences of
| the actions you take. Perhaps a better question to ask is
| how did they allow themselves to end up in this position
| where they have absolutely no choice but to make a poor
| decision in the first place? Were there no adults at the
| wheel leading up to this? Is this not a sign of an
| entirely broken system?
| sidibe wrote:
| You are starting with the assumption they've been forced
| to do something wrong, I think you have to explain what
| that is first
| np- wrote:
| IMO, it's similar to something like institutional racism.
| There probably are very few people who are openly and
| unashamedly racist at the highest levels of power
| (although sadly not zero) - but all it takes is the
| current players acting in their own self interest to keep
| perpetuating an extremely unfair and totally rigged
| system. Basically what MLK described in his Birmingham
| jail letter. (and to be clear, I think both of us are on
| the same page)
|
| But I would say - their underlying intentions are
| absolutely and totally irrelevant to the discussion. The
| only thing that matters is that they acted in a way that
| boosted Wall Street at the expense of retail traders, and
| thus they are perpetuating a corrupt system, whether they
| feel like they are or not.
| vmception wrote:
| > all it takes is the current players acting in their own
| self interest to keep perpetuating an extremely unfair
| and totally rigged system
|
| I'll entertain this topic
|
| Lets take a yellow cab driver in Manhattan not wanting to
| pick up a black passenger. If you ask them, they'll
| assume its because the black passenger lives in Brooklyn
| or some other not-Manhattan place and that the driver
| wont get a good tip and wont be able to get fares at the
| destination, making it less economical.
|
| The cotton and tobacco trade was also economical.
|
| Economics is never a good reason to make an exception for
| discrimination.
|
| But an individual may not have specific feelings about
| race, while they perpetuate a system of discrimination
| regardless.
|
| It still requires empathy to be able to relate to all
| parties in an articulate way, to see what needs to change
| to provide service and access to everyone.
|
| (To the person I replied to, there is nowhere that I'm
| disagreeing with you, in case you've been conditioned to
| look for that)
| hooande wrote:
| You have to solve this problem at a higher level. Why are
| black passengers more likely to live in poor and far away
| places?
|
| Obviously it will take time to resolve that. Generations
| at the least. But we have to do something in the mean
| time, or we'll be perpetuating the negative effects of
| social bias. We should change the short term economics
| using taxes and regulation as much as possible, while
| clearly telling people why we're doing that.
| ignoramous wrote:
| > _Lets take a yellow cab driver in Manhattan not wanting
| to pick up a black passenger._
|
| A good example for folks on news.yc, instead, would be to
| look at hiring in tech: In particular gate-keeping by
| screening in only the traditionally White/Asian
| universities:
| https://twitter.com/shaft/status/1355696154990628864 Such
| institutionalised behaviour has ripple effects of all
| kinds including people from under-represented backgrounds
| finding it increasingly difficult to _make_ it in tech.
|
| In India, similar situation plays out with hiring and
| fund raising: https://twitter.com/arnav_kumar/status/1354
| 780261158801409
|
| Coming back to Robinhood, it isn't far-fetched to really
| view their decision, subsequent lying, and the follow-up
| CMA stories to be construed as "don't care about the
| little guy as much as the big guys" behaviour.
| matwood wrote:
| > They're going to lose much of their base, and they deserve
| to
|
| Where are they going to go? Even with their problems, the RH
| app is pretty good - especially for the first time trader
| with a few hundred dollars. My primary brokers app and
| website works, but is very cumbersome. The closest thing out
| there might be ToS from when I used to use TDA.
| ketchuptomorrow wrote:
| These days there are a number of alternatives out there.
| Others have mentioned Fidelity, IBRK, TD Ameritrade
| (Thinkorswim), and WeBull. I'd also recommend looking at
| ETrade, Tradestation, Schwab, Tastyworks, or Dough.
| freeone3000 wrote:
| IBRK has a great app, and API access so you can write your
| own frontend. The explanation of trades isn't as idiot-
| proof, though, and it won't let you trade options unless
| you complete a knowledge test.
| jackson1442 wrote:
| > and it won't let you trade options unless you complete
| a knowledge test.
|
| This is honestly for the best, and is a feature I'm
| surprised Robinhood has not implemented.
| megablast wrote:
| The issue with robin hood has nothing to do with options.
| People were going long on stocks.
| k4ch0w wrote:
| Anywhere but there. Who would seriously use them for their
| savings or investments after this? Who cares about their UI
| when they don't have your best interests at heart.
| gkoberger wrote:
| Hmm I've seen on r/wsb that many are going to Fidelity,
| while a few are trying weird apps like Webull.
|
| But maybe a better way to put it would be "they're going to
| lose the trust of much of their base", which might be fine
| short-term but long-term isn't great for them.
| dheera wrote:
| > Stock trades don't settle until T+2
|
| This too smells fishy and rigged to me. Modern databases don't
| need T+2 to achieve consistency. Ask PayPal or Visa or Alibaba.
| They can do it in a matter of seconds. But the people up at the
| top of the stock market choose to not implement it. Why?
|
| > on margin
|
| What about high frequency trading instiutions on Wall Street?
| Who gives them their margins, and why is it that they are
| subject to much less interference than RobinHood users?
| stu2b50 wrote:
| >Modern databases don't need T+2 to achieve consistency. Ask
| PayPal or Visa or Alibaba
|
| But that's actually not true though, it takes days to settle
| those transactions, the payment processors just provide the
| illusion of instaneousness by smoothing it over with their
| own fungible cash reserves.
| mschuster91 wrote:
| > it takes days to settle those transactions
|
| The question is: why? There's absolutely _no_ technical
| (e.g. nightly batch processing) or process (e.g. physical
| cross-country mailiing of paper stocks) reason any more. It
| 's 2021 not 1960, technology should have evolved over the
| last decades. To wait days for money and stock transfers is
| _ridiculous_
| yibg wrote:
| Maybe there are reasons other than technical ones.
| gruez wrote:
| >The question is: why?
|
| legacy systems. Someone in another thread mentioned a lot
| systems still use the "move file to this ftp folder and
| we'll process it in the morning" method to process
| transactions.
| MrMan wrote:
| I think it is legacy thinking more than systems. If we
| wanted to we could have a system more like European one,
| but for whatever reasons we don't care enough. The
| behavioral side of this is far more interesting than the
| superficial technical issues.
| NovemberWhiskey wrote:
| Moving from T+3 to T+2 is estimated to have cost the
| industry over half a billion dollars in technology and
| process re-engineering.
| wnoise wrote:
| Honestly, that's minuscule compared to the flows
| involved.
| db579 wrote:
| If that's genuinely the case then it's no wonder people
| are angry. At the scale of money involved legacy tech
| just shouldn't be an acceptable excuse.
| pomian wrote:
| I have always been impressed at the speed of financial
| transactions in Europe. Since SMS became a thing, I have
| watched in amazement, how people have been buying cars,
| houses, other goods, transferring money, with their cell
| phones. It all happens 'instantly.' Meanwhile, when we
| send money from bank to bank, or to Europe, or UK, it
| takes 3 days, or more! Surely, it is set up by the system
| to collect interest during that time period? Multiply by
| thousands, millions transactions, that is a lot of
| interest collected.
| mschuster91 wrote:
| Well... here in Europe the EU parliament passed laws that
| created the unified payment area (SEPA) as a first step
| and then forced the banks to offer overnight transfers.
| The current aim is instant payments, especially to reduce
| the dominance of Paypal.
| mgkimsal wrote:
| you'd collect interest on money you loaned out. they'd
| have to be loaning out some amount of money, and even if
| it's just 'backed up' by all this 'inflight' money,
| that's not terribly safe. I think the majority of the
| slowness is just down to old/legacy systems, and the
| sheer volume of stuff that has to be touched to make
| upgrades. I'm not saying upgrades/changes _never_ happen,
| but it 's a big effort. Why do we still have relatively
| poor security around a lot of financial stuff? Because
| the cost of just writing off fraud is still usually much
| cheaper than the long-term effort of systemic upgrades.
|
| Other countries didn't have as much infrastructure to
| upgrade, and have been able to leap frog the US in many
| ways.
| walkedaway wrote:
| T+2 is an artifact from the days where there was paper
| trading and everything was done via open outcry. There's no
| technical reason it can't be done much faster. ATM
| transactions are atomic within 60 seconds. Credit cards are
| faster than that writing to their ledgers. And yes, while
| behind the scenes those transactions don't settle until
| next day via bank or credit card processor, there's no
| technical reason that they can't be done in near real-time.
|
| In the US the reason we still have T+2 is that it benefits
| the financial institutions to do so at the expense of the
| individual. One of the many reasons I have zero empathy for
| the industry.
| Jommi wrote:
| Howabout KYC,Security,fixing errors? You're really saying
| that there are no downsides in doing this faster?
| walkedaway wrote:
| 1. KYC done ahead of time. 2. Security? How is doing it
| faster less secure? If anything it would be more secure
| because of the reduced threat area, right? 3. Errors
| should not happen in an electronic system. That's a bug,
| not an error with the parties involved. If we can do T+3
| in an era with zero computing power, it's obvious we can
| do much faster in the year 2021.
|
| Again, we do this in other areas where consumers demand
| it.
|
| Yes, I'm really saying there are no downsides. Can you
| name one?
| db579 wrote:
| It may well be that it _does_ take payment processors t+2
| days but I think the point remains that it should not.
| MrMan wrote:
| The reasons are a combination of human factors.
| Technologically it is possible for atomic transactions to
| be completed far earlier, but commerce is a web of
| interactions between mostly real humans.
| beezle wrote:
| Even if trades settled at T+0 (overnight) there are still
| rules against good faith and free riding violations in
| addition to liquidation issues.
| MrMan wrote:
| Brokers! Provide short term funding. T+2 is a fact of life in
| North American equities trading.
| tonfa wrote:
| > Why?
|
| Because it allows for more internal netting, and more time to
| reconcile discrepancies with the tape.
|
| If you're familiar with computers, it's the same kind of
| tradeoffs as doing lots of rpcs vs. batching.
| mlyle wrote:
| > This too smells fishy and rigged to me. Modern databases
| don't need T+2 to achieve consistency.
|
| The problem is, you have lots and lots of databases-- there's
| not one central ledger of every position. Settlement is
| effectively an atomic commitment protocol, so that if you are
| selling a stock you expect to receive from one firm to
| another, and someone else fails to deliver, you need to be
| able to unwind the downstream trades-- but also need all
| transactions to eventually become final.
|
| The T+1, T+2, T+3 periods are convenient in human units,
| because sometimes it's desirable to have a human in the loop
| when unexpected things happen.
| vinniejames wrote:
| If only a public shared ledger was available for these
| institutions to settle trades on.
|
| People love knocking Bitcoin here, but this is why the
| technology exists. No reason to continue letting these
| institutions run smoke-and-mirrors with everyone's money
| mlyle wrote:
| Maybe eventually. Right now, there's a whole lot of
| problem with scaling for distributed ledgers. Big markets
| do 20M trades per day-- and that's just across the market
| itself.. This is like 50k TPS average (not peak) across a
| trading day; some distributed ledgers do better but
| compare to several transactions per second across Bitcoin
| and a few thousand TPS per second for most performance-
| oriented ledgers.
|
| You might also not want to have a public ledger of all
| the ownership interests.
|
| It also doesn't exactly solve the problem. You still have
| the prospect of double spend, etc, until
| commitment/ledger settlement. And for high stakes
| transaction you probably want humans in the loop talking
| about what to do when these things happen instead of some
| automated policy.
| MrMan wrote:
| Don't get confused - other markets have end of day
| settlement, stocks are a different animal but its not
| because humans in NYC aren't familiar with databases and
| transaction processing.
| azinman2 wrote:
| https://thismatter.com/money/stocks/settlement-and-
| clearing....
|
| It's shortened over time, but things across many parties
| still need to be sorted out, including buffets for fraud.
| Visa also doesn't work the way you think it does, much like
| checks, ACH transfers, and wires also take days to clear.
| SkyMarshal wrote:
| T+2 is not a database limitation, it's a deliberate decision
| by clearing houses to provide a window for cancelling a trade
| in case there are problems - fraud, etc.
| MrMan wrote:
| Or breaks due to executions that are nonconforming
| skybrian wrote:
| Stock trades can be corrected. I'm not sure when they will do
| it, but apparently you get 30 minutes to ask for a correction
| and they need longer to review it manually.
|
| See: https://www.investopedia.com/terms/e/erroneous-trade.asp
| QuesnayJr wrote:
| Whether or not it is fishy, it is the literally, honest-to-
| God truth. Not only that, it is well-known within the
| industry. People have floated replacing the system with
| something that settles faster, but they haven't.
|
| There's a Wikipedia page on it (last edit December 2019):
| https://en.wikipedia.org/wiki/T%2B2
| SkyMarshal wrote:
| _> The biggest problem is Robinhood 's poor messaging. It's
| clear their highest priority was to avoid admission that they
| were running out of money. They didn't want to trigger a bank
| run or shake the confidence of their newly acquired users, so
| they tried to obscure the message as much as possible. As a
| result, the popular narrative assumed some sort of evil
| conspiracy theory._
|
| This was my impression too, especially from RH CEO's interview
| on Chris Cuomo. He tried to communicate that they were
| effectively getting margin called, but without explicitly
| saying it, vaguely referring to SEC and exchange rules and
| regulations, hoping the audience would read between the lines.
| But not giving a straight answer just fed the conspiracy
| theories.
|
| In hindsight, considering RH raised $1B additional capital a
| day or three later [1], it would have been better for him to
| have just been explicit about it.
|
| _"Yeah Chris, here's the problem. As you know RH enables no-
| fee trading and instant trading the moment you join. We
| maintain margin accounts with our exchange partners to risk
| manage this.
|
| However, the massive rapid influx of new users combined with
| the unplanned-for three-sigma increase in volatility in these
| stocks caused us to hit our margin limits with the exchanges.
| We're getting margin called at unanticipated levels and just
| don't have the capital buffer.
|
| We're raising additional capital as quickly as we can to fund
| our margin accounts and re-enable trading, but until that's
| accomplished we have no choice but to disable buys on these
| high-vol stocks.
|
| We disabled buys and not sells for two reasons: 1) only buys
| require margin in our system, and 2) if you think traders are
| angry when you disable buys, they get even angrier when you
| disable sells and lock them into a position that could suddenly
| go against them.
|
| To our customers, we're terribly sorry about this and are
| working overtime to solve the problem. We're raising additional
| capital to increase our margins with our exchanges, and are
| updating our risk models to better accommodate such black swan
| events going forward. We're listening to complaints and
| suggestions and evaluating additional ideas we hear to improve
| our service."_
|
| Something like that I'm sure WSB would have bought, and
| eventually forgiven them for.
|
| [1]:https://news.ycombinator.com/item?id=25954539
| malandrew wrote:
| But even once they did they still lowered the limit to 5
| shares, then 3, then 2 then just a single share.
| SkyMarshal wrote:
| I imagine they have some function determining this, that
| correlates number of shares available per user, number of
| users, and RH's own capital buffer.
|
| When combined with the massive influx of users all wanting
| to buy the same stocks, their newly raised $1B capital
| buffer is getting diluted across a larger and larger pool
| of traders.
|
| /r/wallstreetbets jumped from 1.7 million users to 6
| million users in just a few days. Some portion of those
| either joined RH to buy GME, or already had a RH account
| and started using it to buy GME.
|
| https://www.reddit.com/r/wallstreetbets/comments/l7u8h5/rem
| i...
|
| And GME only has 65 million shares outstanding in the first
| place, so max available shares per WSB trader alone is
| ~11.5. Factor in the broader market and it's less.
|
| https://www.reddit.com/r/wallstreetbets/comments/l83va0/gme
| _...
| ar_lan wrote:
| They also didn't just do it for high volatility stocks -
| they are doing it for "competitor" stocks as well. IPOE is
| limited to one share now, right after their merger with
| SoFi (a Robinhood competitor).
| Waterluvian wrote:
| And yet if I recall correctly, they were quite deceptive and
| cagey about simply telling everyone the truth upfront. Instead
| they said it was for everyone's own safety.
| pfortuny wrote:
| Lying (and hiding this type of information behind dodgy reasons
| is tantamount to lying) is illegal also.
|
| Did they do a per-customer assessment?
|
| Why did they not just close shop for the day? At least that
| would have been honest.
| beezle wrote:
| So they should penalize all their other clients who are not
| involved in trading GME? Everyone else should pay the price
| because DTCC raised collateral requirements to settle GME
| trades?
| gruez wrote:
| >Lying (and hiding this type of information behind dodgy
| reasons is tantamount to lying) is illegal also.
|
| Were they lying? They made carefully crafted statements that
| were true, which wsb proceeded to extrapolate to fit their
| narrative that something nefarious is going on.
|
| >Did they do a per-customer assessment?
|
| The deposit requirements are not dependent on the customer's
| credit abilities (see also: they can't use customer funds),
| it's directly dependent on what stock they're buying.
|
| >Why did they not just close shop for the day? At least that
| would have been honest.
|
| "I wanted to cash out last week but robinhood shut down!
| Robinhood caused me to lose 80% of my investment!"
| pfortuny wrote:
| Did they release the true information?
|
| No. Like Bill Clinton, "they did never have sex with that
| woman", which _in a way of understanding_ is technically
| true.
|
| Either the market flows with honest information or it is
| being rigged.
| gruez wrote:
| >Did they release the true information?
|
| I guess?
|
| * Did they shut down trading because of volatility? Yeah
| technically because the volatility was what caused their
| deposit requirements to go up.
|
| * Were they having liquidity issues? No, because they
| shut down trading before it became an issue.
|
| >Either the market flows with honest information or it is
| being rigged.
|
| I'm having trouble imaginging how him lying cause the
| game to be "rigged". Specifically, how him lying caused
| material harm to the robinhood users. People saw trading
| was restricted, so they jumped ship to other brokerages.
| They'd have done that regardless of whether it was caused
| by gremlins in the server room or liquidity issues.
| dasudasu wrote:
| That's entirely possible and even likely, but that's still a
| huge market failure that should be corrected. You can't have a
| situation like this happening to some stocks exclusively.
|
| Where were those increases in required DTC collaterals when
| TSLA/NIO/your favorite SPAC was going through the roof? The
| conspiracy just moves to whoever unilaterally decided to raise
| collateral requirements from 2% to 100% -- a 4900% increase,
| and nice and whole numbers that seem fully arbitrary. A
| situation in which people have settled in their accounts should
| not depend on some backdoor credit wizardry that ultimately
| damages retail investors.
| tonfa wrote:
| Were those stocks moving +100%/-50% daily?
| akiselev wrote:
| _> The biggest problem is Robinhood 's poor messaging. It's
| clear their highest priority was to avoid admission that they
| were running out of money. They didn't want to trigger a bank
| run or shake the confidence of their newly acquired users, so
| they tried to obscure the message as much as possible. As a
| result, the popular narrative assumed some sort of evil
| conspiracy theory._
|
| What I don't get is, why is the fear of a bank run relevant?
| It's a startup and most people seems pretty YOLO about using
| it. I don't know anything about investor sentiment so I'm
| genuinely curious - I thought the SIPC covers the FDIC
| equivalent for RH accounts that show any semblance of trading.
|
| In this frothy market where a bunch of investors barely do due
| diligence, having collateral problems from _too many_ customers
| joining too fast sounds like one of those rare "great problems
| to have," as evidenced by the line of credit they just got
| extended. Even with the added risk, investors are probably
| lining up. I was surprised that the CEO didn't go down that
| line of reasoning for the marketing effect.
| ameetgaitonde wrote:
| It might not be fear of a bank run, but of enforcement from
| the SEC or FINRA for not maintaining sufficient net capital.
|
| If they did run afoul of these regulations, it's probably
| advisable to not admit it on televised interviews.
|
| That would also explain why they accepted a $1 billion
| investment rather than expanding their credit lines, and
| continued to limit purchases of Gamestop stock.
|
| Monday at open, when last week's option contracts are
| settled, is going to be interesting.
| tbrock wrote:
| Giving people who don't understand margin a margin account is
| the easiest way to have them blow themselves up financially.
| Most people think that this leverage is free, it's not, and it
| multiplies your risk. If you are wrong you'll be twice as
| wrong. If Robinhood should be criticized for anything it should
| be this.
|
| There's a reason people have to usually apply for a margin
| account separately. Automatically handing them out is a recipe
| for disaster.
|
| I'm all for empowering folks to do what they want with their
| money but it should be pared with some sort of education.
| ubercow13 wrote:
| Could you explain how it multiplies your risk in the case of
| RH?
| MrMan wrote:
| Why don't you figure out how borrowing to make a trade
| increases your risk, and explain it to the rest of the
| class? Teaching will deepen the lesson for you. Luckily it
| is all basic arithmetic.
| barbecue_sauce wrote:
| Wow, what a dick.
| ubercow13 wrote:
| But you're borrowing a fixed amount of money that has
| already been effectively taken from you. My understanding
| of RH (I am not a user) is that you are not allowed to
| spend above the amount that is already incoming to your
| account, via ACH transfer or via sold stock that hasn't
| yet settled. It wouldn't make sense for RH to margin call
| you because at any one time, whatever money they would
| ask for would already be incoming to your account. There
| would be no point in them liquidating your position
| because it would clear even later than the previous
| trades, which already cover any margin. And you can't
| sell options or anything.
|
| Therefore I don't understand what the risk to the
| customer is over and above a cash-only account. I guess
| there's a risk that your bank transfer won't go through,
| or your stock sale will be withdrawn or not settle? Is
| that likely?
| barbecue_sauce wrote:
| You have to pay for "margin" in the sense that most traders
| think of it (for leveraged purchases). The automatic margin
| that RobinHood gives you is only equal to your purchasing
| power according to your recorded deposits and trades to speed
| trading velocity and gloss over the underlying slowness of
| the US banking system.
| oysterberry wrote:
| It is not a conspiracy but the system is broken.
|
| Everyone seems to be missing the point of WHY collateral
| requirements have gone up. It is not because of volatility of
| the price movement, but volatility of whether the trade will
| clear.
|
| The reason the trade might not clear is because of hedge funds
| or market makers that might go bankrupt, and not have the
| capital to pay for the shorts that they need to buy back. The
| collateral is there so that if the hedge fund can't pay, the
| clearing house or broker must pay. What seems to have happened
| is somewhere along the line a broker did not margin call the
| hedge funds fast enough, and DTCC with their collateral
| requirements has spread the risk from that one broker or
| clearing house to all of the brokers. In essence, the hedge
| funds losses are in a way "too big to fail" now because of the
| way the risk was spread.
|
| In this system, everyone is working to protect themselves (thus
| not conspiracy), which in turn happens to be screwing over
| retail. The big issue is the broker somewhere or risk
| management team that did not force the short sellers to buy
| back their shares when it was still possible to do so without
| affecting the brokerages. They missed the time and now the
| losses might be too large to absorb.
|
| Meanwhile, they have no problem margin calling retail.
| Robinhood might be faced with an impossible situation they
| didn't cause, but they also aren't pointing the finger at the
| culprits and where the problem started, which is some entity
| allowing the hedge funds to be over leveraged and then not de-
| risking from that leverage fast enough when the trade went
| against them.
|
| A lot of this is explained by the webull ceo in this video:
| https://www.youtube.com/watch?v=4RS4JIEVyXM&feature=youtu.be
| tonfa wrote:
| > The reason the trade might not clear is because of hedge
| funds or market makers that might go bankrupt, and not have
| the capital to pay for the shorts that they need to buy back.
| The collateral is there so that if the hedge fund can't pay,
| the clearing house or broker must pay.
|
| If anything wasn't the market worried that RH would go
| bankrupt (when the GME inevitably crashes)?
|
| Unlike retail, hedge funds and market makers have risk
| modelling, and they got out of trades they can't afford (plus
| all the shorts had collateral, if they can't afford it the
| broker closed it).
| gruez wrote:
| >Meanwhile, they have no problem margin calling retail.
|
| Presumably because hedge funds have more lenient margin
| agreements than retail. After all, it's easier to collect
| from a hedge fund with billions AUM compared to a bunch of
| millennials living paycheck to paycheck with $50k of student
| loans.
| oysterberry wrote:
| Yes this is true, and sometimes they don't even need to
| collect because they can write off the small loss (this is
| explained in the video from the webull ceo).
|
| But the lenient margin requirements let them hang
| themselves when they can't collect because the losses are
| too big and will bankrupt the hedge fund. So now they are
| too big to fail, it's not only the hedge funds problem that
| they made a bad trade, it is now DTCC and the brokers
| problem that the hedge fund made a bad trade.
| PragmaticPulp wrote:
| Your argument relies on the assumption that hedge funds
| haven't been margin called, and that they haven't closed
| their early short positions. Many funds have claimed they
| closed early shorts.
|
| The piece people seem to misunderstand the most is that total
| short interest won't tell us if specific shorts were closed
| out. New shorts can replace old shorts at the higher price.
|
| It's like arguing that nobody could have lost their job or
| got a new job because the national unemployment rate was
| unchanged. Aggregate numbers don't tell us about specific
| shorts.
|
| Is it really so hard to believe that people would want to
| short the downside of an obvious short-term market bubble?
| DSingularity wrote:
| Yeah. I find it hard to believe that any serious money is
| shorting anything remotely close to a meme stock right now.
| Who the hell would want to risk their career on a trade
| with infinite downside when it seems like the prevailing
| market sentiment is crush the shorts?
|
| Don't forget that this is a market where most people
| believe TSLA is vastly overvalued.
| toast0 wrote:
| I mean, I'm not willing to risk my money on a short (and
| I wouldn't recommend anyone else to either), but I would
| be intensely surprised if the stock is not below $50 at
| the end or February. If the current price is north of
| $300, and holding costs on a short for a month aren't too
| bad, there's like $200+ of movement there to capture.
| Pump and dump is going to dump at some point. The market
| can stay irrational for a long time etc, but I suspect
| that's less true when everyone knows it's being
| irrational.
|
| I'll just leave everything in my three-fund portfolio
| though, cause boring is the right fit for me.
| sidibe wrote:
| On the contrary, as the gap between the current price and
| the range everyone knows it will fall to eventually
| grows, the stock is becoming more and more attractive to
| short to people with "serious money" and a little
| appetite for risk.
|
| Meme stock just makes it look more like a huge
| opportunity on both sides and in the long run everyone
| knows which direction it goes from here so the
| opportunity is clearly more on the short side if they
| size their position so they can hold it long term. Even
| if there is the chance for further squeeze, I'm sure
| enough people will still feel this is a huge shorting
| opportunity that short interest will not go down much
| from here, and the higher it goes the more people will
| feel that way.
| londons_explore wrote:
| The share capital of the company isn't fixed... The
| company could issue more shares, and invest the money
| raised, turning the business around.
|
| That wasn't a possibility before, but it is now. Given
| that, I don't think "the range everyone knows it will
| fall to eventually" is a foregone conclusion.
| iamacyborg wrote:
| > The company could issue more shares, and invest the
| money raised, turning the business around.
|
| It's a retailer that sells video games. They're not going
| to turn it around while Steam, PlayStation store, Amazon,
| etc exist.
| sidibe wrote:
| They're not in a promising sector and there's nothing to
| suggest raising a bunch of money is going to allow them
| to turn into the kind of company a market cap of $20
| billion suggests.
| londons_explore wrote:
| But if they could raise $1 Billion by selling 5% more
| shares, they could pivot into an entirely new sector
| using some of their existing assets.
|
| For example, they could make an online gaming platform
| using their relationships with game studios, or they
| could move into 'gaming cafes' using their retail space,
| or start designing games themselves using their
| storefronts for marketing.
| sidibe wrote:
| Sure that could happen, but it's just as likely as giving
| anyone a billion dollars and expecting them to become a
| company that justifies a $20 billion valuation very
| quickly. The timing is important too because at the end
| of a mania like this that is entirely based on a quickly
| rising price, as soon as enough people decide this isn't
| going to continue rocketing up, there will be a rush to
| take their profits or to stop their losses.
| dcow wrote:
| There hasn't been enough volume for the shorts to be
| closed.
| NovemberWhiskey wrote:
| Why do you say that? The total free float is about 47M
| shares; I understand short interest was about 150% of
| float but volume on GME last week was over 500M, wasn't
| it?
| oysterberry wrote:
| A more succinct explanation:
|
| Hedge fund has huge unrealized loss that may bankrupt them if
| they try to buy the shares that they shorted back.
|
| Their broker realizes too late, and if they margin call them
| now, the hedge fund might not have enough money to pay for
| the shorts. Thus, the broker will need to pay.
|
| DTCC realizes this, and ups the collateral requirement so
| that the broker / clearing house has to insure someone will
| pay (whether it's the broker or hedge fund).
|
| Because DTCC works with all the clearing houses and brokers,
| the risk from the hedge funds is suddenly everyone's problem
| to deal with together. By trying to deal with it, they close
| down trading for retail, and coincidentally aid the hedge
| funds short position.
|
| Maybe the answer to this is DTCC needing to have collateral
| requirements per clearing house or broker where they think
| the risk is highest (the bankrupting hedge funds). Maybe it's
| regulation to not allow such high leverage or force margin
| calls faster so the losses can't be too big to fail.
| Hopefully something is done to fix it!
| xadhominemx wrote:
| That's a succinct but false explanation. DTCC does not care
| if a HF is about to lose a bunch of money and maybe even
| put a prime brokerage on the hook. Hedge funds make and
| lose hundreds of billions every week. No prime brokerage
| would let Melvin end up near insolvency before issuing
| liquidation margin call and even if there wasn't enough
| post-liquidation to cover losses, prime brokerages have a
| collective market cap of more $1 trillion and are easily
| able to absorb a several billion dollar shortfall. It's
| obvious to anyone who knows what they're talking about that
| you are a financial neophyte inventing nonsense
| conspiracies.
| ogre_codes wrote:
| > Keep in mind that Robinhood also gives everyone a margin
| account by default.
|
| While this is technically true, it is not a typical margin
| account. People cannot invest _more_ money than they put into
| their Robinhood account. In order to do that, they need to
| switch to RH Gold.
|
| RH Basic: I put $100 into the account, I can buy $100 worth of
| stock before my funds clear. (Robinhood Instant)
|
| RH Gold: I put $100 into the account, I can buy $200 worth of
| stock. (Actual effective margin)
|
| While both of these are technically margin accounts, most
| people associate the term "margin investing" with the latter
| model which requires $2000 in the account and a deliberate
| choice to upgrade.
| kbar13 wrote:
| sure thanks for the explanation. at the end of the day the
| user is trading with borrowed money, which is the problem.
| matwood wrote:
| If you do any trading at all, you want a margin account so
| you don't have to wait for settling before making another
| purchase. While technically the money is borrowed for the 2
| days to make your trade, I would never considered it
| borrowed in the typical use of the word margin.
| ogre_codes wrote:
| Yeah, this is exactly my point. What Robinhood is doing
| isn't particularly uncommon in the industry.
| noodle wrote:
| IMO the "problem" is that RH doesn't tell you that (or at
| least their marketing makes it confusing at minimum). The
| way they describe it as an "instant bank transfer", not "we
| give you margin until your transfer clears". The former
| gives you the impression that its your money that you're
| trading with, while the reality is it's a margin account.
|
| That's why a lot of people were angry. They were forced to
| sell GME because they were technically using margin and it
| got called, but they thought it was their own money from
| their own bank account. The optics are that RH forced them
| to sell GME when they didn't want to.
| Dma54rhs wrote:
| Well someone took their own life because they showed him
| a real data for the moment and it was in red and it was
| all over news. Either way they target amateur market.
| PragmaticPulp wrote:
| There's a very specific legal definition of what a margin
| account is.
|
| Robinhood accounts are Regulation T (aka Reg T) margin
| accounts by default. They have limits, yes, but they are very
| much margin accounts. That's how they make their UX work.
|
| The point is that typical user activity will be performed on
| margin, transparently. The flurry of synchronized activity
| caused a larger than normal draw on their margin, which
| further strained their working capital.
| ogre_codes wrote:
| Yes, there is a specific legal definition (I did elude to
| that in the post you replied to).
|
| Most people don't understand that definition and when they
| hear "Margin account" they assume people are making
| leveraged transactions which is not the case. Even
| Robinhood's FAQ and documentation uses the more commonly
| understood definition of margin. One of the primary
| "Features" of Robinhood gold is "Access to investing on
| margin". https://robinhood.com/us/en/support/articles/gold-
| overview/
| ratsmack wrote:
| This may be a perfectly good explanation, but if this is the
| case, why doesn't the Robinhood people release a statement
| explaining this instead of the puff piece the CEO did for PR.
| MrMan wrote:
| Because they are better at growth hacking than providing a
| service
| azinman2 wrote:
| They did: https://blog.robinhood.com/news/2021/1/29/what-
| happened-this...
| negrit wrote:
| After the CEO got caught lying on TV, that's unacceptable.
| gruez wrote:
| The "lied" bit is debatable because there's multiple ways
| of interpreting his statement. It could be "there's no
| liquidity issue [and we could have let GME stock trade
| freely without running into liquidity issues]" but also
| "there's no liquidity issue [anymore, because we stopped
| GME from being traded]". The former clearly favors WSB's
| narrative, so that's what everyone there believed, even
| though it's reading too much into the CEO's statement.
| EGreg wrote:
| More to the point... why didn't Robin Hood simply make the
| buys in those tickers REAL buys instead of margin buys and
| explain the situation?
| phil21 wrote:
| Because that's not actually the problem. If it was just ACH
| deposit clearing time, I'm sure they could have found
| bridge money rather quickly for that as their ACH failure
| rate has to be tiny.
|
| The problem was clearing house margins. It went from a few
| percentage points every buy of GME to 100%. You cannot use
| customer money for these deposits, it must come from the
| brokerage firm's funds itself.
|
| I think it really needs to be discussed that there were
| multiple "liquidity" crunches for RH here, one far more
| significant than the other.
|
| You could have had every single buyer of GME locked and
| loaded with $100k of cash in their account for a month, but
| if they all bought GME last week for cash RH would still
| have the same exact margin requirement problem they have
| now with their clearing house. That they still had hundreds
| of billions of their customer's capital on deposit would
| have been irrelevant.
| erik_seaberg wrote:
| Why can't I use a customer's money as collateral on the
| securities the customer told me to buy for them? Is this
| a "funds transfers used to be very slow" thing between
| the broker and the clearinghouse?
| nrmitchi wrote:
| So much of Robinhood's product is built on the facade of a
| margin-account-not-being-a-margin-account that that would
| be impractical.
|
| Doing so would have likely pissed people of more.
|
| "New sign up to Robinhood? Just started a transfer?
| Awesome! I know all our marketting material says 'trade
| right away', but actually you have to wait 2 days right
| now."
|
| "Just sell a bunch of other stock in order to buy GME?
| Well, unfortunately right now you can't use that money for
| 2 days. See you next week! Ps: thanks for the taxable event
| that you probably wouldn't have done if you understood that
| you'd have to wait!"
| SpicyLemonZest wrote:
| WSB users are known to exploit Robinhood problems for fun.
| There was one case a few years back where they found a way to
| evade margin requirements and get arbitrarily high leverage,
| for example. If I were Vlad Tenev, I'd be seriously concerned
| that a detailed description of which kinds of trades cause
| problems for Robinhood would be used to collect WSB accolades
| by knocking the company over.
| thefounder wrote:
| Quite a brush to put all wsb "accolades" in the same
| bucket. I could say some very nasty things about some
| ycombinator "accolades" as well.
| mancerayder wrote:
| > WSB users are known
|
| That's a dubious way to refer to people. There are 7.5
| million users in the sub at the moment.
| atlgator wrote:
| The logical fix would be don't allow people to buy on proceeds
| that haven't settled yet. Other brokerages do this regardless
| of the security. But instead they specifically limited buying
| only certain securities that their hedge fund affiliates
| happened to have shorts in, thereby eliminating buy volume
| entirely and causing the stock price to go down. It's too
| coincidental to ignore when there was clearly a more
| precedented alternative.
| 13415 wrote:
| About a dozen brokers simultaneously halted buying, not just
| Robinhood.
| PragmaticPulp wrote:
| Because the cost of collateral spiked in meme stocks in
| unison. They had to move money around to post the massively
| increased cost of collateral.
|
| Everyone seems to be forgetting how fast this all happened.
| siruncledrew wrote:
| >The biggest problem is Robinhood's poor messaging. It's clear
| their highest priority was to avoid admission that they were
| running out of money.
|
| IMO, this is why anyone wanting to "trade seriously" should NOT
| use Robinhood.
|
| Robinhood is like the fast food of investing. It's designed for
| convenience, but makes you worse off in the end.
|
| If you want a legit trading platform, then download
| Thinkorswim, Tastytrade, Schwab, Webull, Etrade, or Fidelity.
|
| Any of the above will tell you way more information than
| Robinhood, give you significantly better charts, and various
| extras like News and Level II data for free (at least
| Thinkorswim does).
|
| Honestly, just look around at the different offerings, maybe
| give them a test-drive, and choose whatever one suits you. Yes,
| you will probably have to learn the platforms, but that
| learning is valuable knowledge.
| mancerayder wrote:
| Great. Now care to explain how the same thing happened with
| TDA, IB and Schwab? All under-capitalized as well?
| [deleted]
| hctaw wrote:
| It sounds like the problem was sign-ups then, not trades.
| tempsy wrote:
| I'm waiting for an explanation why Starbucks is on the
| restricted list. It's not volatile.
| tedunangst wrote:
| The collateral requirements depend on net buys vs sells. I'm
| guessing RH was tapped to the limit, and the buy limits were
| applied to anything with unbalanced orders. That applied to a
| bunch of stocks then, some that were up, and some that were
| down and looked cheap. (SBUX and AMD were among those down
| after earnings last week.)
| tempsy wrote:
| whatever the reason it's clear they can't handle whatever
| volume they are seeing right now. who would continue to use
| them at this point.
|
| most momentum trades are crowded - this implies any new
| crowded trade will have to be restricted.
| hayst4ck wrote:
| People create excuses all the time for everything. "You
| shouldn't hate Robinhood because they were
| new/incompetent/unprepared." Maybe. Maybe there's 10 different
| sources to they could have gotten the money from and they chose
| not to as well. Maybe there were actions they could have taken
| to solve the problem and chose not to because they were more
| aligned with the problem not being solved.
|
| This is why I don't like this explanation. At face value it is
| a good excuse, but when you do an analysis from an ethics and
| alignment point of view: Citadel is in bed with
| Melvin. Robinhood is in bed with citadel Robinhood
| sells data to citadel (this almost certainly is at the direct
| cost of it's users) Robinhood does transactions through
| citadel (skimming some of the money off of users transactions)
| *Robinhood is more aligned with citadel than retail*
|
| The whole point of an excuse is to seem reasonable. Even if the
| excuse is true, the underlying relationships are very smelly.
| All of this from every side is speculation until discovery is
| done.
|
| Counterpoint, trading firms across the board were asked to
| alter behavior: If "You wouldn't believe the shit going on
| behind the scenes right now. 10 hedge funds have fallen, and
| our clearing firm emailed to block ALL trading platforms from
| $GME, $AMC, and the like." is true, then that is quite
| literally a conspiracy.
| https://www.reddit.com/r/IAmA/comments/l81l3g/dan_pipitone_c...
| AndrewUnmuted wrote:
| > Is it really so hard to believe that such an unprecedented
| mass movement would break the underlying business assumptions
| of a pre-IPO startup that was heavily dependent on their credit
| lines?
|
| I don't think anyone is discounting this. The problem is that
| after going through so many of these problems with various pre-
| IPO startups, we appear to have not learnt our lesson.
|
| - Facebook made us think it was safe to publish our real names
| and pictures online, and attach them to a public profile. When
| cyber-stalking and cyber-bullying became a thing, they feigned
| shock & ignorance.
|
| - Twitter used to suggest anonymity and low-intensity were the
| main goals of their product. Then they doubled the character
| limit just as doxing and other forms of real-life intimidation
| began picking up steam on this platform.
|
| - YouTube used to portray itself as a free speech video
| platform, encouraging users to upload any and all videos that
| don't explicitly break the law. Now YouTube polices its content
| to such an extent, and with such murky and ever-changing
| policies, that speech which is perfectly legal and protected by
| federal law is banned without explanation. It now even inserts
| itself into the conversation with a degree of authority that
| pre-Google YouTube would never have dared attempt.
| throwaway333444 wrote:
| The problem with this theory is that it wasn't just Robinhood.
| There were literally like a dozen or so firms that halted
| buying. Some of which were well known long established firms
| (Merrill, etrade).
|
| These firms should have had no problem continuing allowing
| purchasing.
| JumpCrisscross wrote:
| > _There were literally like a dozen or so firms that halted
| buying_
|
| My understanding is these firms halted buying on margin. Did
| anyone else halt for non-margin accounts?
| thefounder wrote:
| They halted buy on stocks(no margin) on Interactive Brokers
| which powers most of the retail apps in Europe. I think the
| other brokers did the same. If you listen to this guy it's
| pretty clear he'a protecting the hedge funds.
|
| "If our customers loose money we have to put ours"
| https://m.youtube.com/watch?v=7RH4XKP55fM
| rusticpenn wrote:
| Looks more like he is trying to protect his company. ( If
| the Hedge fund or clearance house fails, the broker would
| loose a lot of money).
| thefounder wrote:
| Yeah, better let the retailers loose..not market
| manipulation, just driving the stock to the right price
| where both the broker and the hedge wins. I wouldn't call
| this a free market.
| tonfa wrote:
| Is your underlying theory that with no intervention the
| stock would have no choice but to go to the moon?
|
| Seems pretty bogus to me, there's still liquidity (so
| that's nothing like VW squeeze, where 75% of the market
| was cornered by porsche and 20% was held by a german
| state, leaving only 5% available for shorts to rebuy).
| Also current shorts were likely made at a much higher
| level.
|
| And GME could do like AMC and AAL and issue more stock
| (why wouldn't they, it's like free money).
| thefounder wrote:
| >> Is your underlying theory that with no intervention
| the stock would have no choice but to go to the moon?
|
| If the retailers hold the line they will squeeze the
| shorters. They already did it but the bulk of the juice
| is still there. VW is not the only example. Tesla is a
| more recent one. Of course GME could issue new stock.
| Many executives liquidated/sold their positions. AMC
| already issued new stock. These are different issues.
|
| Restrict the buying of any given stock(i.e Tesla), halt
| it intermitently and then announce that you are banning
| it because it's too volatile and speculative.
|
| What's the expected result? I could bet its goes down and
| that's the whole point I'm making: the brokers and hedge
| fund managers collude to the drive the price down. They
| decided what the stock is worth or better said what the
| price should be at the expense of the buy side/retail
| investors. This is a predatory environment not a free
| market. Imagine if the brokers would suddenly liquidate
| the hedge funds shorts due the volatility.
| tonfa wrote:
| > If the retailers hold the line they will squeeze the
| shorters.
|
| As long as there's liquidity (and it seems like there is,
| the entire float is trading every day), sure some short
| position might give up because they lost their bet
| (assuming they're not hedged anyway), but there's always
| going to be someone else shorting at a higher and higher
| level, and in the end the shorts will inevitably win.
|
| Even without any trading halt, it would end up like all
| pump and dump, with a few winners (those who dump or
| short at the top).
|
| And in any case there's probably only a handful of hedge
| funds playing (and some will lose, other will win), and
| those being neutral in it (eg market makers) will win as
| well with all the trades.
| midasuni wrote:
| EToro in U.K. halted it - no margin account, we have
| instant transfers of cash.
|
| Managed to buy $beermoney worth in the end to say I was
| there, although that was at 20% higher than I tried to (not
| that it matters)
| iamacyborg wrote:
| They're a cfd broker aren't they?
| pengaru wrote:
| No, I have no margin on my e-trade account and was abruptly
| blocked from all GME-related trades without warning on
| Thursday. Plain old cash buying.
| [deleted]
| nverno wrote:
| The article discusses this- excess buys and market volatility
| lead to increased capital requirements by clearing houses, so
| it wasn't necessarily specific to robinhood.
| Hacker29382 wrote:
| When powerful people need to bend the rules, they don't do
| it outright. They find cover. And if there's any discretion
| in how much liquidity clearinghouses require, that's what
| they'll modify.
|
| You'll see similar things when influence is sold. Speakers
| are given huge fees for basic speeches and then they know
| what they should do. Nothing is spelled out, because that
| would be dumb.
| soared wrote:
| > These firms should have had no problem continuing allowing
| purchasing.
|
| Their costs increased 50x overnight - so they definitely
| should have had problems. DTC required a few percent
| collateral, and then overnight required 100% collateral on
| $GME. No business (well, fidelity and a few others weathered
| it) is able to increase short term liquidity 50x overnight.
| criddell wrote:
| Their CEO went on CNN and stated there were no liquidity
| problems at RH.
| Rebelgecko wrote:
| Couldn't they just add a requirement that GME can only be
| purchased with settled funds? That seems like it would
| solve the issues mentioned above
| Dma54rhs wrote:
| Settled funds means two days that is longer than the
| whole situation. It was mainly new money anyway so the
| accusations and anger would be the same?
| Triv888 wrote:
| I wanted to disable my margin account on RH but I didn't find
| how... luckily I no longer do business with them.
| nrmitchi wrote:
| For what it's worth, there seems to be a link in their docs
| to downgrade to a "Cash" account.
|
| But with that you lose pretty much all the functionality
| (instant transfers, instant settlements, etc) that makes
| Robinhood any better than any other non-margin alternative.
| Unless you're a huge fan of confetti. I hear Cash accounts
| still get the confetti.
| ds206 wrote:
| I want to believe you but then I see how the short sellers
| think about these kinds of situations:
| https://www.youtube.com/watch?v=VMuEis3byY4
| ac2u wrote:
| >Everyone assuming a conspiracy theory needs to read this.
|
| I'm not sure of your point here. Anyone that assumed there's a
| conspiracy theory is pretty much right. Now, if you mean the
| 'Brokerage X is in cahoots with this particular hedge fund
| theory', then yes, it's fair to argue that's debunked.
|
| But the overall conspiracy theory of "there are forces
| conspiring against the natural supply/demand market forces",
| well, they've pretty much all had the nerve to come out in the
| open and admit it.
|
| It's not the stockholders fault that all these clearing
| intermediaries use shitty fragile risk models that haven't
| accounted for rare events and instead of facing the music
| they've artificially turned the marketplace for these stocks
| into sell-only in order to stop a further price rise and
| exposing themselves further.
|
| To be clear, the rest of your comment seems that we're in
| agreement, expect that I would go further to call a spade a
| spade, it's absolutely a conspiracy.
| pja wrote:
| _It 's not the stockholders fault that all these clearing
| intermediaries use shitty fragile risk models that haven't
| accounted for rare events and instead of facing the music
| they've artificially turned the marketplace for these stocks
| into sell-only in order to stop a further price rise and
| exposing themselves further._
|
| The availability of liquidity in the market at any price & at
| any time is an illusion. It's an illusion that holds most of
| the time, but nevertheless it isn't real.
|
| When the market is under stress, the illusion falters & the
| plumbing starts poking through the gaps. If you want to be
| able to buy and sell shares with very fast confirmation at
| the prices quoted in the market then you need intermediaries
| who can extend the credit that enables that transaction to
| happen. When the market is under stress, that credit becomes
| more expensive & liquidity falls away. This isn't a
| conspiracy or the result of collusion, it's a consequence of
| the structure of the market.
| [deleted]
| jcranmer wrote:
| > It's not the stockholders fault that all these clearing
| intermediaries use shitty fragile risk models that haven't
| accounted for rare events
|
| Those risk models were added into the system by law because
| the prior risk models said that there was no way anything
| could go wrong so that when things did go wrong during a
| "rare event," the _entire_ financial system seized up
| practically overnight.
|
| This time, the only people who are complaining are the people
| who think they're driving the people shorting Gamestop out of
| business, while the rest of the financial system and the
| greater economy looks on in merry amusement.
| ummonk wrote:
| They did not follow the risk models required by law. They
| went beyond that and jacked up the collateral requirements
| on meme stocks to 100%.
| jcranmer wrote:
| My understanding is that the components on the model that
| caused the collateral requirements to jump are actually
| enacted by regulation.
| ummonk wrote:
| No, the point is that while the model would have caused
| the collateral requirements to jump, that's not all the
| DTCC did - they enacted a 100% collateral requirement on
| specific stocks, which is not something the models
| required.
| selectodude wrote:
| How do you know? Do you write the risk models? There
| aren't many stocks that swing from +100% to -3% in a day.
| andylei wrote:
| > it's absolutely a conspiracy
|
| I think a "conspiracy" requires some sort of actual
| coordination. A bunch of actors doing the same thing for the
| same underlying reason isn't a conspiracy. Lots of people
| going to sleep when it gets dark isn't a conspiracy.
| scatters wrote:
| > they've artificially turned the marketplace for these
| stocks into sell-only in order to stop a further price rise
|
| What's your basis for attributing this intent to the discount
| brokers? It may have that effect, but as explained in the
| article it's fully accounted for by their need to conserve
| capital.
| ac2u wrote:
| I didn't. I said it was the clearing infrastructure.
| (Although it all flows down to the brokers as a
| consequence).
| PragmaticPulp wrote:
| Who, specifically, do you claim is conspiring? And to what
| end?
|
| These collateral requirements were implemented to reduce
| systemic risk of the system failing under extreme volatility.
| It was designed to prevent collapse, requiring government
| bailouts. It wasn't designed to break a consumer-facing
| investment app that didn't even exist yet.
| ac2u wrote:
| >Who, specifically, do you claim is conspiring? And to what
| end?
|
| I'm happy to retract the conspiracy definition on the basis
| that there isn't explicit coordination. If you'll allow me
| to move the goalposts a bit I'll settle on the fact that my
| frustration is in the excuse-making that these actions are
| just regular checks and balances, instead of being the
| nefarious acts they are, unfair interference in the markets
| to the detriment of retail investors.
|
| When you have heads of brokerages coming on talk shows (my
| memory of who isn't great) recently claiming that they'll
| open things up "when things settle down", and actually
| claiming "this is a $17 stock" (nothing wrong with the
| opinion, it's just unfair for a marketplace to be wielding
| their influence like that), we're living in bizarro world
| when the media isn't calling them out on it.
|
| Then you have the CEO of nasdaq saying they'll consider
| halting trading if they can match social media chatter to
| movements (as if it's possible to prove causation anyway)
| so that large institutions get time to adjust?? When does
| the retail investor with their pension on the line ever get
| time to adjust?
|
| >extreme volatility.
|
| It might be extreme but it's not unpredictable. The
| helpless "how could we have seen this coming?" from
| institutions rings hollower each time throughout the
| decades that it's used.
|
| The answer here is to stop the interventionalism that tries
| to hide natural volatility. Do you think social media is
| causing volatility and leaving pump and dump bagholders?
| Fine, _let it happen_ on the small scale more frequently
| and sooner or later people will learn through frequent
| exposure that you can lose your shirt.
|
| However, if you constantly intervene? You're hiding the
| volatility until a large event is allowed to hide in plain
| sight and deliver a liquidity crisis for many.
| tedunangst wrote:
| All the people angry about this were delighted when Dodd-
| Frank passed promising to reduce volatility risk.
| [deleted]
| Paradigma11 wrote:
| Isn't there also the related/same problem that WSB users on RH
| explicitely and intentionally want to ruin the short sellers
| which unavoidable would leave the middleman/RH holding the bag?
|
| Suddenly your users, not customers those are the market makers,
| are your opponents.
| [deleted]
| jdhn wrote:
| 1) All accounts were banned from buying these shares, even ones
| whose accounts had cleared funds.
|
| 2) If margin requirements were the problem, why not inform the
| user that due to the unusual circumstances, the increased
| margin cost would be passed onto the buyer?
| stu2b50 wrote:
| Margin is a red herring. Robinhood cannot use client money to
| meet its clearing fund deposit requirements. Whether the buys
| and sells came from margin or not doesn't matter.
| rozab wrote:
| And most importantly, _why was only buying of meme stocks
| disabled_? This argument doesnt hold up to any scrutiny
| TAForObvReasons wrote:
| It does appeal to the "oh they're still a startup"
| mentality, perfect for the HN crowd
| Leparamour wrote:
| And most importantly, why was only buying of meme stocks
| disabled?
|
| You gave yourself the answer. The collateral is connected
| to the volatility. The meme stocks saw their price
| volatility increase massively, therefore the DTCC
| collateral demand was raised from 3% (low-volatility) to a
| whooping 100% collateral.
| UncleMeat wrote:
| Because those are the ones that push up the required
| collateral with the settling firms. The meme stocks are
| buy-heavy and highly volatile. Stocks that are less
| volatile and have matched buy-sell rates don't. Halting
| buys of meme stocks meant that RH needs less collateral
| with settling firms. Halting other buys doesn't change a
| thing.
| 0x00000000 wrote:
| Robinhood has also halted 50 other stocks including
| arbitrary ones like AMD.
| https://investorplace.com/2021/01/robinhood-bans-reddit-
| stoc...
|
| There must be more to their internal situation they
| aren't telling us because they probably just imploded
| their IPO
| UncleMeat wrote:
| The same outrage (or worse) would occur if they halted
| sells. Could you imagine if the price tanked and people
| couldn't exit their position? It is a lose-lose
| situation. And I think a lot of people would consider a
| full block to be worse.
| 0x00000000 wrote:
| Yeah I guess that makes sense. Maybe the takeaway is to
| not use meme brokers to buy meme stocks
| Hacker29382 wrote:
| >Is it really so hard to believe that such an unprecedented
| mass movement would break the underlying business assumptions
| of a pre-IPO startup that was heavily dependent on their credit
| lines?
|
| Why didn't the recent-ish pot stocks bubble or the dry shipping
| bubble cause the same restrictions?
| thefounder wrote:
| There is no conspiracy theory. Simply put both the hedge funds
| and the brokers have a common interest to ripoff the retailer.
| It's not like they are hiding, at least the guy from
| Interactive Brokers https://m.youtube.com/watch?v=7RH4XKP55fM
| ar_lan wrote:
| > The biggest problem is Robinhood's poor messaging. It's clear
| their highest priority was to avoid admission that they were
| running out of money. They didn't want to trigger a bank run or
| shake the confidence of their newly acquired users, so they
| tried to obscure the message as much as possible. As a result,
| the popular narrative assumed some sort of evil conspiracy
| theory.
|
| All of the previous bits of your message don't matter because
| this right here killed any chance of "good faith" people might
| have in Robinhood. Even if there really is no conspiracy, I
| personally am moving 100% to Fidelity after this fiasco (in
| fact, I moved everything _but_ my remaining GME that exists in
| Robinhood already). I honestly, at this point, have about 20%
| faith that Robinhood will allow me to liquidate that GME -
| instead they will probably remove the "sell" button at some
| point too.
|
| I explicitly do not trust Robinhood anymore. It's one thing to
| say "we fucked up", or even "we can't handle this load anymore,
| we are going to need to remove the buy button". I'd be pissed
| but wouldn't want them scorched - at this point I hope the
| whole company goes bankrupt instead.
| Avicebron wrote:
| prag you have been a warpath, I hope robinhood is paying you
| well for this
| jzoch wrote:
| Its in poor taste to call it a "meme stock purchase" when it
| legitimately has a chance to make (and for many has already
| made) investors a lot of money. While there are memes _around_
| the stock purchase (no different than with TSLA) it is a very
| legit investment strategy and market opportunity.
|
| This was not Robinhood denying a couple redditors some meme
| material - it was a company denying many regular americans a
| once-in-a-lifetime investment opportunity (and in itself the
| practice may have suppressed the power of that investment)
| [deleted]
| qwertox wrote:
| > Is it really so hard to believe that such an unprecedented
| mass movement would break the underlying business assumptions
| of a pre-IPO startup that was heavily dependent on their credit
| lines?
|
| This sounds more like an insurance issue which Robinhood didn't
| want to deal with.
| fortran77 wrote:
| Why did this congresswoman, a champion of the marginalized and
| oppressed, call for a hearing? And why only for Robinhood, when
| several firms had the same policy? And why is the SEC not also
| the subject of her proposed "hearing?"
|
| https://twitter.com/AOC/status/1354830697459032066
| tedunangst wrote:
| Because the people who feel robinhood wronged them are most
| likely to donate to her campaign. Not as many IBKR users in
| her fan base.
| mgkimsal wrote:
| Less cynically, she may have heard from more constituents
| who were affected by the RH policy than other firms.
| Doesn't have to tie specifically do 'donations' or 'fans'.
| fortran77 wrote:
| It just seems odd to stand up for the rights of the
| oppressed to speculate on puts, shorts and covered calls.
| whateveracct wrote:
| because it's mostly for show?
| Nullabillity wrote:
| The sentence right after that, in her first reply to herself:
|
| > Inquiries into freezes should not be limited solely to
| Robinhood.
| SilasX wrote:
| >Keep in mind that when someone sells a different stock to buy
| GME in the same day, they're buying GME on margin. Stock trades
| don't settle until T+2, so any new purchases using those
| proceeds are done on margin.
|
| TBH, that, for me, is the real scandal here. We have such an
| antiquated system that we _can 't actually be confident_ who
| owns the stock at any point until you do some super-slow
| settlement process that takes two days[2]. And so, enshrined in
| law, we have this bolted-on system where you have to put up
| extra collateral just to be confident of something that
| shouldn't need said collateral.
|
| There is no reason, with all the identities attached, and
| auditing procedures, and digital signing, and protocols we have
| today, that we shouldn't be able to _know_ who owns the stock
| at any given point, and not have to rely on these super-slow
| resolutions.
|
| In this case, they had to add that collateral, even when buying
| with money that pretty obviously was there (had been deposited
| years ago).
|
| Plus, some articles are claiming[1] that even stock you do own,
| whose purchase long ago settled, is being lent out without your
| direct knowledge by the broker for a profit, which is like ...
| what?
|
| [1] https://yudkowsky.medium.com/r-wallstreetbets-is-trying-
| some...
|
| [2] Incidentally, people like to ridicule Bitcoin for taking an
| hour to settle since you have to wait an hour to get six
| confirmations. But that's actually fast compared to this
| (centralized!) system, since you have to compare to the time
| after which you can "take the stock/cash and run".
| vinniejames wrote:
| The reason for this is the fact that large businesses profit
| from being the middle-man here. Moving towards automated
| settlement on a blockchain reduces cost and increases
| efficiency,it's a win-win for everybody except the middle-man
| xadhominemx wrote:
| Blockchain does not do anything a database cannot. It's a
| pointless application of the technology.
| dan-robertson wrote:
| Blockchains are about decentralisation and removing the
| need for trust. But neither is necessary in the case of
| stock settlement. If you accidentally have the DTC send
| someone a bunch of your shares, you politely ask that
| person for them back and you'll likely get them. Try doing
| that with a blockchain (especially if you accidentally send
| them to a nonexistent address)
| Beldin wrote:
| Having the stock market emit 325.95 kg CO2 per transaction
| [1] is one of the few ways I've ever heard to make the
| stock market significantly worse for society --
| irrespective of your current feelings about it.
|
| [1] https://digiconomist.net/bitcoin-energy-consumption/
| Scoundreller wrote:
| There's more to crypto than Bitcoin.
| NovemberWhiskey wrote:
| Who do you think "the middle-man" is here, exactly?
| tzs wrote:
| There's nothing in fast, cheap, automated settlement that
| requires a blockchain. A centralized system should cost
| less, at least compared to a proof of work blockchain, due
| to energy costs.
|
| Also, stock markets are heavily regulated. In a centralized
| system, it is relatively easy to enforce regulations. How
| do you do that in a blockchain based system?
| yks wrote:
| Blockchain is the biggest "solution looking for a
| problem" of our time and because it looks like we've
| entered the meme age, I'd not be surprised if everything
| was reimplemented with blockchain regardless of the fit.
| Grustaf wrote:
| Why would a blockchain be better than a traditional
| database for this? Making it decentralized is a non-goal,
| so what would the advantages be?
|
| The real issue is not the specific technology, it's that
| it's an ancient hodge podge.
| scatters wrote:
| > Plus, some articles are claiming[1] that even stock you do
| own, whose purchase long ago settled, is being lent out
| without your direct knowledge by the broker for a profit,
| which is like ... what?
|
| That's how your "free" trading account is paid for. If you
| don't like it, fine! Just be prepared to pay per trade and
| per month.
| Scoundreller wrote:
| Other brokers lend out your stuff too.
|
| > TD Ameritrade earned about 4.1% and E*TRADE earned 3.5%
| from securities lending. Schwab's is upper bounded at 2.2%.
| Interactive Brokers was an outlier at about 9.7%. (These
| are all net of payments to clients; Schwab, notably, passes
| the fee revenue for their mutual funds to the fund
| shareholders.)
|
| https://www.kalzumeus.com/2019/6/26/how-brokerages-make-
| mone...
|
| All RH did was figure out there's enough money sloshing
| around to do away with commissions and disrupt them.
|
| After RH, other brokers cancelled commissions without going
| bankrupt.
|
| I'd be using RH if I could too. So many $s spent on
| commissions that were just a profitgrab.
| KMag wrote:
| Nobody is really a fan of the SEC breaking trades, but many
| view it as a necessary evil to promote stability of the
| system in the face of fallible humans and potentially buggy
| systems.
|
| Shortening settlement reduces the time window where the SEC
| can reliably intervene. Take the example I gave earlier[0] of
| a pension fund manager fat-fingering an order with a
| hypothetical 1-minute settlement window. With one-minute
| settlement, by the time anyone realizes the pension fund has
| made a 10 million USD mistake, that money may be spread
| across a charity, a new baseball stadium, and thousands of
| stock trades indirectly via an ETF arbitrageur indirectly via
| an options market maker's delta hedging. It's a fictional
| tale, but it's not far fetched in a world of rapid
| settlement.
|
| Hopefully some day we have much more reliable automated
| systems and humans further from the loop, but until then,
| slow settlement increases the window to take corrective
| action.
|
| [0] https://news.ycombinator.com/item?id=25953459
| londons_explore wrote:
| If you pay someone by mistake, there is already well
| established law for getting your money back.... And you can
| do it anytime within some number of _years_.
|
| Theres no reason to slow the original payment down when
| there is a process for getting mistaken payments back.
| gnu8 wrote:
| > Plus, some articles are claiming[1] that even stock you do
| own, whose purchase long ago settled, is being lent out
| without your direct knowledge by the broker for a profit,
| which is like ... what?
|
| That is how short selling works and it is not a controversial
| process. It is normally transparent or invisible to the owner
| of the shares, eg you still get your dividends and can sell
| the shares at will. My understanding is that if the short
| seller goes bankrupt and cannot repurchase the shares, the
| brokerage provides the shares to the owner and takes the loss
| themselves.
| tinus_hn wrote:
| Wait until you find out that stock can be traded even though
| it doesn't actually exist
| modeless wrote:
| Yes. DTCC and their T+2 settlement are the villains here.
| It's a ridiculous legacy system that needs to go.
| beezle wrote:
| DTCC is not a villian. You would have the same problems for
| any settlement greater than T+0 and in the limit T>0 the
| problem actually increases as you eliminate the possibility
| of netting positions.
| modeless wrote:
| How does the problem increase if settlement is measured
| in milliseconds instead of days? Retail brokerages could
| just wait for trades to settle instead of trying to
| maintain this fiction that trades are done before they
| settle.
| hntrader wrote:
| What problem does moving from T+2 to T+0 solve exactly?
| Aren't the capital requirements the same, and hence the
| outcome would've been the same? I'm no expert on this
| topic so I could be wrong.
| freeone3000 wrote:
| The entire point of collateral is to hedge against you
| not being able to provide the money in two days, when the
| share actually is exchanged for cash. If, instead of
| collateral, you got the cash, capital requirements would
| be reduced as you would get the money from sales
| immediately, and wouldn't need to keep a pile of money to
| collateralize buys while waiting on the income from your
| sales.
| treis wrote:
| It (effectively) eliminates counterparty risk if you can
| move money & stocks fast enough. That (theoretically)
| drives capital requirements down to 0 to settle trades.
| kazinator wrote:
| The absolute speed/latency of trading is not relevant;
| what is relevant is the speed of trading decision
| relative to the speed at which information propagates to
| all involved.
| modeless wrote:
| We're not talking about trade execution here. Trade
| execution is already fast. We're talking about
| settlement.
| soared wrote:
| > There is no reason, with all the identities attached, and
| auditing procedures, and digital signing, and protocols we
| have today, that we shouldn't be able to know who owns the
| stock at any given point, and not have to rely on these
| super-slow resolutions.
|
| Trillions of dollars are moved in these markets - you can't
| just hop in and do a quick rebuild with crypto, launch it,
| and call it good. Imagine rebuilding ythe core infrastructure
| at Microsoft - that takes years and years. But now you also
| have the entirety of the global economy dependent on your
| software. You also need to meet heavy government regulation
| and comply with oversight.
|
| There is a whole shit ton of reasons this process hasn't been
| updated to T+0. It was t+3, now t+2, and I've heard (from the
| CEO of Webull on bezinga power hour yesterday) wanting t+1
| this year.
|
| Edit - to be clear I'm not saying dropping the current system
| for a new one is the only option. I'm saying improving the
| system at all (or rebuilding it) is arguably one of the most
| challenging software tasks one could undertake and there are
| serious reasons financial markets are not anywhere near what
| is "technically possible".
| syshum wrote:
| >>Imagine rebuilding the core infrastructure at Microsoft -
| that takes years and years. But now you also have the
| entirety of the global economy dependent on your software.
|
| That is a bad analogy, MS takes years to change the core
| because it require INSANE levels of backwards
| compatibility. Apps written for windows 2000 still work and
| need to work today...
|
| This would not need to be the case with this type of
| system, there are a whole host of political reasons why the
| system is built the way it is, part of it is the desire to
| control it (and in this case the wrong people where doing
| things they were not suppose to)
|
| I am sure you will call that "conspiracy", but the reality
| is that the investment system is setup to be slow and
| opaque not because of the need for backwards compatibility,
| or security it is that way so the "correct people" control
| it plain and simple
| SilasX wrote:
| In fairness, stock exchanges care even more about
| backward compatibility and so it would be at least as
| much an issue for them.
|
| Edit: Sorry, I say it way too much, but this merits a
| repeat of the one-liner: "The reason God was able to
| finish the earth in only six days is that He didn't have
| to worry about backward compatibility [or legacy system
| integration, or satisfying an installed userbase]."
| splintercell wrote:
| Sure, but there's no real reason why ALL companies need
| to have their stocks compatible with each other on the
| same exchange.
| andylynch wrote:
| They don't, there are hundreds of exchanges and plenty of
| competitors for listings - CSDs & clearing are a pinch
| point.
|
| _But_ in some ways exchanges also function as a natural
| monopoly; especially for primary issuance. e.g. look at
| AMEX 's IPO slate compared to the big two, where the
| market is right now - it's insignificant, and they are
| the #3 exchange in the US. People want to list to make
| money, and that means going where the liquidity is until
| there's a really good reason not to, like with NASDAQ's
| move to electronic trading in the '70s.
| the_local_host wrote:
| > [T]here's no real reason why ALL companies need to have
| their stocks compatible
|
| I think it would be way harder to trade a basket of
| stocks (e.g. pairs trading, going long one and short the
| other) if you had to worry about mismatched settlement
| dates across the different stocks; it would be like
| trading spot against a one-day forward.
| Out_of_Characte wrote:
| You've just defined exactly what high frequency traders
| do to make money. They balance all stock exchanges in
| order to make tiny profits on the stock differences.
| oblio wrote:
| I think even Win95 apps work on Windows 10, not just
| Windows 2000 :-)
|
| Think about all the flak they're getting for
| Settings/Control Panel. It's a multi-decade process to
| rewrite all of Control Panel, because Control Panel
| supports custom integrations plus it's such a central
| piece of software that looking at the code the wrong way
| probably breaks some client doing some crazy stuff with
| it :-)
| splintercell wrote:
| > Trillions of dollars are moved in these markets - you
| can't just hop in and do a quick rebuild with crypto,
| launch it, and call it good.
|
| OP talked about how 'this is absolutely possible', but
| you're responding to him by saying "but we can't just drop
| everything and move to the new system".
|
| You're right but that doesn't make OP's point any less
| correct. Generally in a legacy system we migrate by
| building all new features onto the new system. For
| instance, if the company wants to move their legacy jQuery
| based banking app to Vue.js, they can start by building a
| more orthogonal component in the new technology, so it
| doesn't affect the other thing. Eventually once enough
| things have migrated (possibly years later), the benefits
| of the new system justify the cost of migration even more.
|
| Stock of an existing company like GE is different than a
| company which is yet to launch (say Coinbase). The best way
| (perhaps the only way) to migrate is to start launching new
| IPOs on this new system. We did migrate from being on paper
| to computers, I'm sure we can do it again (and hopefully
| with better technologies in the future...again).
| SilasX wrote:
| >Trillions of dollars are moved in these markets - you
| can't just hop in and do a quick rebuild with crypto,
| launch it, and call it good.
|
| Which is why I didn't say anything like that. Just, that
| settlement time should have improved with our protocols for
| validating ownership, not been frozen in time.
| sokoloff wrote:
| It _has_. It used to be T+5 [business day] settlement
| until 2004, then T+3 until 2017, and is now T+2.
| Out_of_Characte wrote:
| To be fair, That's nothing. High frequency traders have
| been on the order of microseconds for years. everyone
| trades under the assumption that the system is faster
| than it is. This is going to be an unpopulair opinion but
| wall street is esentially a government-like entity built
| by the elite. troughout history any scheme that destroyed
| market assumptions have been met by the SEC under the
| guise of protecting the fair, orderly and efficient
| market. No thought is given to actually fix design flaws
| in the open market. Just prosecute anyone who manipulates
| it incorrectly.
| ericbarrett wrote:
| When one realizes that in January 2021, some major
| financial institutions are still settling transactions via
| _CSV files sent on basic FTP,_ the scope of the problem
| becomes clear!
| not_knuth wrote:
| << laughs with tears and a devilish look in eyes >>
|
| Regardless of the fact that most of the banking sector is
| still stuck on IBM mainframes from the 60s-80s running
| COBOL:
|
| I have seen accountants who's only job it was to come in
| every day and do the same sums on Excel.
|
| I've seen people insisting on a calculator and a printout
| so that they could sum up columns of an Excel table and
| send the results back via email.
|
| There are valid reasons to move slowly. Transition costs
| to new systems are usually immense and the process is a
| nightmare for banks, but none of what I described fell
| into that category. It was just people refusing to change
| their ways. A report for treasury could've been
| instantaneous with a super simple _live_ updating
| dashboard. But no. Instead, the CEO got an Excel file
| emailed to them every week that was put together by 40
| people - many of whom entered the numbers _manually_.
|
| In the industry we have come to call people involved in
| these tedious processes "hamsters", because they might as
| well be going up and down the escalator all day.
|
| I don't think many people understand how excruciatingly
| slow banks move and how inefficient they are.
|
| /cathartic rant over
|
| Edit: (I should add for context that this was a fairly
| large bank in continental Europe)
| markus_zhang wrote:
| Actually a large part of financial operations goes
| through Excel sheets automated by mountains of VBA code.
|
| Hilarious. It's definitely out of the if it works then
| don't touch it idiom.
| austinheap wrote:
| It's actually TSV via SFTP and well over 50% of American
| wealth operates this way.
| orwin wrote:
| I'm pretty sure we broke one of our bank client by
| telling them that data import will be exclusively with
| SFTP. We ended up allowing FTP (and thus our security
| certification was voided).
|
| It was a Euro bank though, but it was barely two years
| ago.
| takeda wrote:
| So they do move with times. /s
| zikzak wrote:
| Tons of businesses exchange data like this (e.g. drop
| ship product availability, etc). Platform independent and
| easy to read over if things go wrong. I don't see the
| issue.
| ericbarrett wrote:
| SFTP if they're "compliant." FTP is still in the wild.
| na85 wrote:
| SFTP actually works really well. No need to go full
| "javascript framework" and rewrite it in some meme
| language like rust just because it's more than 6 months
| old.
| colllectorof wrote:
| _> Trillions of dollars are moved in these markets_
|
| ...and they jammed when a single subreddit decided to buy
| GameStop shares. Just think about what that means.
| jpsalm wrote:
| What? A few (new) trading platforms that are deliberately
| trying to shake up the market 'jammed'. The market itself
| was fine.
| nemothekid wrote:
| The market was not jammed, only Robinhood was jammed. I
| could still buy GME on Schwab if I wanted
| colllectorof wrote:
| "GameStop and AMC trading restricted by TD Ameritrade,
| Schwab, Robinhood others "
|
| https://www.msn.com/en-us/money/personalfinance/gamestop-
| and...
|
| "Some users are experiencing issues with trading
| platforms Vanguard, TD Ameritrade, and Charles Schwab due
| to heavy volume"
|
| https://www.businessinsider.in/tech/news/some-users-are-
| expe...
|
| Not to mention that the market is made up of _all_
| platforms and several of them were downright prohibiting
| GME buying. Some are listed in the article. Robinhood
| alone has more than 13 million users.
| easton wrote:
| The restrictions at Schwab (and I'm pretty sure TD) were
| different than Robinhood, they only restricted shorting,
| buying on margin, and selling naked options. Buying and
| selling GME/AMC with cash were available the entire time
| (I could do it).
| throwawayboise wrote:
| I had heard that Schwab and TD Ameritrade suspended GME
| trades as well, was that not true?
| mcguire wrote:
| I was unable to look up the GME quote on TDA Thursday. In
| their UI, the quote is the place with the Buy button.
| pc86 wrote:
| Related but separate. Robinhood has an internal
| clearinghouse which halted trading for Robinhood.
|
| Apex is a large third-party clearinghouse used by M1 and
| others that restricted buys for all (most?) of its
| clients. TDA and Schwab both have their own internal
| clearinghouses so far as I know.
| londons_explore wrote:
| Theres a site for that: https://www.wherecanibuygme.com/
| NovemberWhiskey wrote:
| ... or Fidelity or Vanguard or Wells Fargo or Citibank or
| ...
| divbzero wrote:
| What are the "whole shit ton of reasons" why shorter
| settlement periods are so difficult?
|
| In particular, I'm curious why we didn't jump straight from
| T+3 to T+1. Even if T+0 is especially challenging, what
| would make T+1 substantially harder than T+2?
| eej71 wrote:
| As with all these changes, it's mostly about coordination
| and legacy systems.
|
| Just as Y2K was a challenge and just as the 2038 date
| will be a challenge, it's all about pushing changes
| through legacy systems. ascii->unicode, ip4->ip6, python
| 2->3. We all know the drill. We've all lived through
| these things.
|
| It's rarely a technical problem. It's about coordination
| across firms, domains, people, and systems that may not
| be known ... until they break.
| throwawayboise wrote:
| Yes. I used to work at an investment bank. When the
| market moved from T+5 to T+3 it was a major project for
| all internal systems to be adjusted. It wasn't just a
| matter of changing a SETTLEMENT_DAYS macro in a header
| file. And even afterwards, it wasn't that, because there
| were different systems written in different eras and in
| different languages.
|
| Multiply this by however many thousands of firms, all
| with their bespoke back-office systems. and it takes
| time.
| adamredwoods wrote:
| What language was this written in? Did it stay in the
| same language? If it's say, FORTRAN, I wonder if there's
| value in learning it soon.
| incongruity wrote:
| Coordination problems can become technical problems - or
| be caused by technical decisions.
|
| Moving a system/network of actors from one system to a
| new, incompatible system? You need to coordinate the
| switch so it all happens at once. Can't coordinate? Then
| you need a compatibility layer between the two systems.
| aeternum wrote:
| My understanding is that the delay is due to humans in
| the loop. Most of the clearing is automated, but if the
| numbers don't add up, humans still intervene to figure
| out how to reconcile the differences.
| ashtonkem wrote:
| Fun fact; back when I worked in finance (2015-2017), forex
| trades including Bitcoin actually settled _slower_ than
| anything else by about a day. Our pipelines had to detect
| crypto trades in order to fix the expected settlement date.
| newacct583 wrote:
| But... 2-day latency for purchases of interest in companies
| sounds perfectly reasonable given the notional purpose of
| those transactions. Isn't the real scandal that we've built a
| huge trillion dollar industry around this idea of "trading"
| that has nothing to do with the asset being purchased?
| Jommi wrote:
| https://old.reddit.com/r/wallstreetbets/comments/l2n5wv/most.
| ..
| toast0 wrote:
| > We have such an antiquated system that we can't actually be
| confident who owns the stock at any point until you do some
| super-slow settlement process that takes two days[2].
|
| We know who owns almost all the shares. It's Cede & Co. They
| own almost all the shares of all the publicly traded
| companies. But if you sell shares that aren't owned by Cede &
| Co, it takes longer to process them, because corporate
| transfer agents are sloooooow; supposed to deliver in T+2,
| but more like T+7.
|
| My understanding is a brokerage is only allowed to lend your
| shares if you have a margin account; and possibly only if you
| have an open margin position. Of course, Robinhood pushes a
| margin account on everyone, and that turns purchases with
| unsettled cash into a margin position; apparently RH doesn't
| allow that in cash accounts, even though most established
| brokers do.
|
| At this point, I'm not sure why anybody would choose RH as a
| brokerage. They seem less reliable, their UX is bamboozling,
| most established brokerages charge the same $0 comissions and
| give more of the payment for order flow to clients,
| established brokerages (tend to) have much more excess
| capital on hand to meet increased collateral requirements,
| established brokerages can enable settings to limit risky (to
| the brokerage) trades in volitale stocks without blocking all
| trades, and RH is decidedly non-transparent.
| skybrian wrote:
| Unlike Bitcoin, stock trading errors can be corrected. The
| review process isn't automatic.
| Scoundreller wrote:
| I think ethereum showed us that the blockchain can be
| corrected when they screw up.
|
| Just depends how important the people are that lost.
|
| https://www.wired.com/2016/06/50-million-hack-just-showed-
| da...
|
| If I fat finger something on TD Ameritrade, nobody is going
| to rescue me.
| skybrian wrote:
| It seems they might under certain circumstances, but you
| need to ask for a correction within 30 minutes? I don't
| know how you'd do that on Ameritrade.
|
| I'm guessing this isn't about the normal UI that most
| customers use, though. I imagine it's possible to submit
| bids and asks at any price, and someone could fat-finger
| that. So, someone who put in a bid at 222 for a stock
| that's trading around 22 might have a reasonable case
| that it's a typo for 22.2 and should be reversed.
|
| https://www.investopedia.com/terms/e/erroneous-trade.asp
| amluto wrote:
| I'm not very familiar with stock settlement, but I'm quite
| familiar with the settlement of some other, less regulated
| instruments. These often also have two-day settlement but
| seem less dysfunctional. So I'm not convinced that the T+2
| settlement is the problem per se. To the contrary, T+2
| settlement gives people a chance to correct errors, if any,
| before anyone takes the money and runs.
|
| I can imagine a two-day settlement system that works better.
| Specifically, all parties would need to post cash with the
| clearinghouse before buying and to post stock before selling.
| Customer funds would be expected to be used for this purpose
| -- no broker should ever go bust because their customers
| bought stock too fast. And, critically, unsettled receipts
| would be valid collateral, possibly with a small haircut. So,
| if you sell one stock, you can immediate use (most of) the
| proceeds to buy something else without needing to come up
| with additional collateral.
|
| In effect, this would be immediate settlement plus two-day
| escrow.
| selectodude wrote:
| That's literally exactly what currently happens. Every
| stock has a margin requirement, you post cash with the
| clearing house as a percentage of order flow. When a
| particular equity becomes highly volatile, the amount of
| margin you need to post goes up. In GME's case, to 100
| percent. So when somebody on Robinhood uses instant
| deposit, Robinhood has no access to your funds for a couple
| days, but when you buy GME, they need to put up 100 percent
| collateral on your behalf when they submit your order
| request. They simply didn't have the liquidity to cover all
| of that.
| amluto wrote:
| As I understand it, Robinhood cannot use customer funds
| to satisfy their collateral requirement, nor can they use
| the proceeds from sales that have not settled. And
| somehow naked shorts exist, which means that it's
| possible to sell stocks without first posting 100% of
| that stock as collateral.
|
| The fact that Robinhood needs to come up with external
| funding to secure a customer cash stock purchase (if I've
| understood the current rules correctly) is, IMO, bizarre
| at best.
|
| So no, I don't think the market already works the way I
| proposed.
| selectodude wrote:
| >Robinhood cannot use customer funds to satisfy their
| collateral requirement
|
| Of course they can. That's literally what they're for.
| When I buy 100 shares of SPY, the brokerage requires that
| Robinhood attaches a percent of required margin to submit
| the order to the settlement clearing house. Ideally,
| that's a percentage of my money, or their money, or
| whatever.
|
| >And somehow naked shorts exist, which means that it's
| possible to sell stocks without first posting 100% of
| that stock as collateral.
|
| Naked shorting is illegal. You cannot sell shares you
| aren't able to locate and purchase. The GME clusterfuck
| happened because people bought GME and sold them short to
| somebody who turned around and sold those same shares
| short again.
|
| >The fact that Robinhood needs to come up with external
| funding to secure a customer cash stock purchase (if I've
| understood the current rules correctly) is, IMO, bizarre
| at best.
|
| They need to come up with cash due to the fact that they
| don't require your funds to settle before you trade with
| them. Basically they're fronting the settlement fee for
| you assuming that your money will clear before the
| settlement clears. ACH takes 24 hours, trades settle in
| T+2, there's some time for it all to happen. When the
| clearinghouse required 100 percent margin, it meant that
| Robinhood needed to put up 100 percent of the cost of the
| share you purchased _before_ they had a single penny of
| your money. It 's not that they won't settle at some
| point, but RH has to float large sums of money for a few
| days in the interim.
| Animats wrote:
| _TBH, that, for me, is the real scandal here. We have such an
| antiquated system that we can 't actually be confident who
| owns the stock at any point until you do some super-slow
| settlement process that takes two days._
|
| It's worse in crypto. Try to get cash out of a crypto
| exchange by T+2.[1]
|
| [1] https://news.bitcoin.com/coinbase-withdrawal-delays-
| leave-us...
| SilasX wrote:
| I use Gemini, which has been happy to wire me money that
| shows up the same day in the other bank's checking account.
| sunshinerag wrote:
| Again the problem is not in the crypto side but the cash
| (fiat) side
| dan-robertson wrote:
| Crypto doesn't have clearinghouses or the same notion of
| settlement. If you and I agreed to trade a Bitcoin, we
| could settle ~immediately by getting a transaction onto the
| blockchain. It's not so straightforward with stock.
| TuringNYC wrote:
| What about funded accounts with no clearance in progress?
|
| This explanation only makes sense if RH allowed the above
| situations to buy, yet it seems they restricted globally.
| wbl wrote:
| You're expecting a basic level of competence and maturity
| that RH doesn't have as evidenced by past problems.
| skybrian wrote:
| The stock trade still takes two days to settle. Apparently
| this is to allow for correcting errors before it becomes
| irreversible.
| gruez wrote:
| > What about funded accounts with no clearance in progress?
|
| Other comments have already mentioned that they can't use
| customer funds for the deposit, so they need to pay it out-
| of-pocket or borrow it.
| beezle wrote:
| This is a portion of a message sent to all users that IB sent
| out Friday afternoon:
|
| _We are seeing unprecedented volatility in GME, AMC, BB, EXPR,
| KOSS and a small number of other U.S. securities that has
| forced us reduce the leverage previously offered to these
| securities and, in certain instances, limit trading to risk
| reducing transactions. IBKR currently has no restrictions on
| trading shares in those companies, and customers can open or
| close positions in those shares. Like many other brokers, IBKR
| placed options on certain of those stocks in closing only
| earlier this week. The plan is to lift those restrictions in an
| orderly manner while closely monitoring market conditions. To
| be clear, IBKR has not restricted clients' ability to close
| existing positions in any of the U.S. securities subject to
| market volatility, and does not plan to do so.
|
| The limits IBKR has placed have applied to all customers and
| were not limited to "retail clients" or any other group._
| jonnyone wrote:
| Is there room for the argument that Robinhood should have seen
| this coming days, possibly weeks beforehand, and been raising
| capital preemptively?
|
| In addition, DTCC raised collateral for specifics stocks from
| 2-3% to 100%, is there not room for investigation why aside
| from "volatility"?
| huehehue wrote:
| No mention of fractional share mechanics. Anyone have info on how
| those work?
|
| I see claims floating around of $2k/share trades, but only on
| fractional share sells. I wonder if people are confusing a real
| squeeze with Robinhood burning money to piece together whole
| shares.
| SpicyLemonZest wrote:
| Fractional shares are an accounting convention within the
| accounts of individual brokers such as Robinhood, giving
| multiple customers a partial claim on a unit of stock the
| broker holds. They're never tradeable on the actual exchange.
| thefounder wrote:
| This is really about protecting their clients, the hedge funds.
| Here you have it from the CEO of Interactive Brokers. The retail
| investors are the product, no the clients.
|
| https://m.youtube.com/watch?v=7RH4XKP55fM
| MrMan wrote:
| Just use a broker like fidelity who is not similarly
| conflicted.
| thefounder wrote:
| Yeah, but if there are 4-5 big players and 3 of them ban the
| purchase of these stocks(not the sale) they can have a big
| impact on their price..just like U.S sanctions affect
| Venezuela's econnomy. And then you find out they have a
| vetted interest to drive the price down...so long with the
| free market
| baryphonic wrote:
| This is well-reasoned and decently thorough.
|
| However, when Robinhood et al halted only buys but not sells,
| they opened themselves up to the "corrupt elite" interpretation
| that Wall Street manipulated the market. There's almost no
| question that the effects of the unidirectional freeze were to
| drive down the price, thereby helping the shorts. Sure, Robinhood
| would have been not as well off as they were when they did allow
| sells, but they'd at least not be directly contributing to
| manipulation.
|
| Further, the article indicates DTCC increased deposit
| requirements. What is their procedure for making this decision?
| Are they rule/process-based or discretionary?
|
| I ask because DRCC seems like a singular bottleneck in this
| system, a single point of failure. It's a bit odd to see the
| argument that it's _not_ a "conspiracy" (though I'd prefer
| "corrupt collusion") because one organization all parties depend
| on made a discretionary decision that caused most participants to
| take an action benefitting the people most likely to be well-
| connected to said organization.
|
| It remains to be seen whether facts bear out any of these
| hypotheses. Facts do bear out that Robinhood lied about their
| cash flow situation. But I do find it peculiar that we're getting
| this explanation three days after the fact. "Government rules
| require vastly increased deposits due to the unprecedented
| conditions yada yada yada" would have been a better message than
| the BS they did end up sending out, and it's a perfect excuse to
| pass the buck.
| mikob wrote:
| Also, if cash were the issue, why limit only "meme stocks" why
| not limit stock buying across the board to prevent
| manipulation?
| modeitsch wrote:
| I want to switch off from Robinhood which alternative are you
| recommending ?
| hikerclimber wrote:
| vanguard or fidelity.
| alecco wrote:
| Whatever you pick, remember to transfer instead of selling. But
| it might take days to happen. Maybe even weeks with current RH
| situation.
| totalZero wrote:
| Actually, if you sell you don't have to wait so long. And you
| don't have to pay $75 in fees to RH.
|
| Why would you prefer to transfer? Just hit the bid and move
| the cash IMO.
|
| EDIT: wasn't thinking about the tax implications for those
| who intend to carry positions greater than a year.
| 8b16380d wrote:
| Tax implications probably
| [deleted]
| reducesuffering wrote:
| After this bull market, you'd have to have only $1,000 in
| the account to make the taxes less than the $75 fee...
| e-clinton wrote:
| What I want to know is why the block buys of GME and AMC when
| they could've blocked purchase of any other high volume stock
| that wasn't the vehicle used as part of a class war. Why not
| block Tesla, Microsoft and Apple purchases?
| anonuser123456 wrote:
| Look, I'm tired of these complicated explanations that let fat
| cats off the hook. I'm here to be angry and will reject any
| evidence that doesn't fit my narrative.
|
| It's very clear that Robinhood colluded with Citadel and Melvin
| capital to help stop me participating in a massive distributed
| market manipulation scheme. I know this, because this is how
| hedge funds work; they always work together to stock it to the
| little guy. You would know this too if you read /r/politics.
|
| If it were not for Robinhood, I would definitely be rich or the
| moon right now. I'm a sophisticated trader and definitely not a
| stupid money bag holder sitting at the bottom of a huge pyramid
| scheme.
| cm2187 wrote:
| ...while I make fun of those gullible Trump supporters who
| believe wild conspiracy theories.
| anonuser123456 wrote:
| And this is actually the deeper point to my commentary.
| People, all people, behave this way. They have their priors
| and seek evidence supporting said priors and work to
| discredit evidence that contradicts their belief.
|
| And this phenomena is just as pervasive on the left as the
| right. The WSB phenomena is a perfect example because it
| crosses ideological boundaries and doesn't fit within the
| current political polarization. It's not right vs. left; it's
| elite vs. the masses.
| akoolkukumber wrote:
| how much did Melvin pay you to say this? lmfao stay mad, GME to
| the moon.
| [deleted]
| alisonkisk wrote:
| Please don't post drivel, even sarcastically. It's still
| drivel, which is spam, even if you say you disagree with the
| substance of it.
| anonuser123456 wrote:
| Satire is a distinct form of criticism that cannot be
| expressed by direct statement of fact or argument. It is a
| perfectly valid form of expression.
| ratsmack wrote:
| I think I detect a bit of sarcasm here somewhere.
| tempsy wrote:
| This doesn't explain why the list of restrictions on buying
| expanded to 50 stocks, including low volatility stocks like
| Starbucks which is now limited to just 1 share.
| totalZero wrote:
| Lol that's because it's speculation and backwards
| rationalization. I'm sure they will eventually update the
| apologetics to somehow address the low-volatility instruments
| as well.
| dcow wrote:
| I mean I get this it's a totally rational explanation of how all
| the machinery works.
|
| But why did Robinhood start liquidating peoples' shares at a loss
| (to the holders)? That is literally stealing from the poor to
| cover their own ass. The bank doesn't sell my house if the
| housing market gets volatile. What give any broker the authority
| to execute transactions on my behalf when they're under pressure
| because of a poorly constructed business strategy?
| NovemberWhiskey wrote:
| That would be the margin agreement that you agreed to when you
| opened your account.
|
| https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Margi...
| drocer88 wrote:
| Robinhood has a conflict of interest. Citadel owns Robinhood.
| Citadel owns hedge funds that shorted GME. Robinhood blocked
| purchasing GME.
|
| Something is fishy in all of this.
| twic wrote:
| Well, i'm glad we finally got a clear explanation of this
| unexpected but thoroughly non-conspiratorial series of events
| from _checks notes_ the guy who runs the Super Smash Brothers
| stats database.
| cccc4all wrote:
| Robinhood is done as trading company. After this fiasco, who in
| their right mind can trust Robinhood for financial future.
|
| The cofounder stated in every interview that it was not a
| liquidity issue. The actual company stated reasons are still very
| cagey and ambiguous.
|
| There are all these third parties coming out with shill articles,
| trying to excuse Robinhood. This is classic propaganda PR
| campaign.
|
| Robinhood can't explicitly state what they did for specific
| reason, because everyone can analyze whether it's true or not.
| What is being attempted is to run third party propaganda PR
| campaign to excuse Robinhood.
|
| Has Robinhood explicitly stated the exact reasons for shutting
| down buying but allowing selling stocks? If not then why not?
| Unless Robinhood comes out with detailed legal and business
| justifications, all these shill excuses are just vapor.
| MrMan wrote:
| Robin Hood in my opinion is constrained by their previous
| marketing. There message to prospective users is at odds with
| reality. At some point this had to catch up with them. Stop
| worrying about this one crappy broker.
| abfan1127 wrote:
| How do high frequency traders operate in these conditions? Do
| they use margin? Is it not as capital intensive because they tend
| to buy AND sell so much?
| dubcanada wrote:
| They don't use Robinhood. Like the article say there is
| companies that are 50 years old with barrels of money.
| xwdv wrote:
| Rather than disabling the buy button they should have had a popup
| appear that explains the situation as simply as possible so that
| people wouldn't resort to conspiracy theories as an explanation.
|
| Instead they made the UX look evil as hell. Like locking a user
| in a room with nothing but a loaded gun.
| totalZero wrote:
| I don't buy the suggestion that DTCC deposit requirements left
| Robinhood and other brokers unable to facilitate all
| transactions. It is a backwards rationalization, trying to put
| technical reasons to a fear-driven decision.
|
| First of all, they limited opening trades for all accounts, not
| just accounts buying on margin or with unsettled funds. If you
| have a cash account and you buy a stock, your broker has plenty
| of time (2days) and plenty of funds (all of them) to clear your
| trade.
|
| Secondly, many brokerages only blocked options transactions.
| These don't clear through DTCC at all. They clear through OCC and
| net purchases of options actually capitalize the clearinghouse
| and can in some cases actually be advantageous to the broker by
| getting their accounts long premium (if the broker is net short
| premium, the OCC charges them more).
|
| It's more likely that the brokerages didn't have enough staff to
| reconcile the trades, or that Robinhood's fake margin accounts
| (Robinhood Instant) left them in a position where they had to
| choose between telling people that they have to wait for funds to
| settle, or limiting trades.
|
| Any brokerage that limits trading in an asset for which the
| exchanges and clearinghouses are functional is harming its
| customers by preventing their market access. Weird hand-wavey
| apologetics about the DTCC or OCC don't explain why the retail
| brokerages had to limit trading in cash accounts.
| dannyw wrote:
| DTCC raised collateral requirements for GME from 2% to 100%.
| spurgu wrote:
| Source?
| noughtme wrote:
| While DTCC did not publicly confirm the amount, it did
| confirm that capital requirements were raised January 28.
| Given that numerous participants have publicly stated it
| was to 100%, that seems likely.
|
| https://www.bloombergquint.com/quicktakes/what-s-the-dtcc-
| an...
| [deleted]
| tptacek wrote:
| Is that documented somewhere? I absolutely believe it, I'm
| just curious.
| stu2b50 wrote:
| Brokers are not allowed to touch client money to submit the
| deposit. That the purchases are settled cash on the user's
| account makes no difference, because none of that money
| Robinhood could use to clear the deposit.
| zaroth wrote:
| But it's not client money the second the trade executes?
| stu2b50 wrote:
| It's client money until it settles.
| zaroth wrote:
| Assuming this is true, what the brokerage needs to do is
| take a loan against the settled cash they are already
| holding in escrow for ~24 hours.
|
| Suppose a 3% interest rate (which seems high for
| guaranteed cleared funds), $1 billion for 24 hours is
| $82,000.
| stu2b50 wrote:
| The Broker isn't allowed to borrow against client money
| either - it's client money, partitioned off from the
| broker's fungible funds, and not the Broker's to offer as
| collateral.
|
| But debt is the natural answer, and Robinhood did get as
| much in loans as they can[0].
|
| [0]https://finance.yahoo.com/news/robinhood-said-draw-
| credit-li...
| gruez wrote:
| >what the brokerage needs to do is take a loan against
| the settled cash they are already holding in escrow for
| ~24 hours.
|
| and that's exactly what they did. On thursday night they
| secured a $1B loan.
| sokoloff wrote:
| That's not _exactly_ what they did. What they did was to
| get $1B in funding against other assets that are actually
| theirs.
|
| Just because your house is worth $1M doesn't mean that I
| (being "not you") can go get a mortgage pledging your
| house as collateral.
| toast0 wrote:
| It's client money until the trade settles at T+2, at which
| point it's the counterparty's money. It's never Robinhood's
| money (unless they're the counterparty, but I don't believe
| they do propriatary trading)
| tptacek wrote:
| At what point does the client's money belong to Robinhood?
| You're not buying stocks from Robinhood.
| zaroth wrote:
| Robinhood is on the hook to do their part in settling the
| trade and delivering the shares to their client and cash
| to the seller.
|
| Obviously once funds are used to execute a trade, they
| are no longer client funds. It seems obvious that the
| cash at that moment would be held separately as the
| shares settle. That's discretely identifiable hard cash
| that is fully funding that specific share purchase.
|
| I completely grok the various ways that cash that "looks
| like" it's in the account might not be; deposits that
| haven't actually cleared, prior trades that haven't
| actually settled.. and in those cases the brokerage is
| actually extending credit to their client, and that
| credit can run dry.
|
| But if I have hard cash and a trade executes, that cash
| is gone from the account. The counterparty risk at that
| point is the shares not being delivered, which seems to
| me like it would be collateral that the _seller_ needs to
| be posting to DTCC (likely DTC already holds the shares).
| The buyer needs to show they have the hard cash, and they
| can easily do that.
|
| I guess I can't get around the fact that if the purchase
| is fully funded with hard cash that's in the account,
| that is cleared cash that can be sent off to DTCC/NSCC
| during the end-of-day settlement via FedWire.
| skybrian wrote:
| You say it's bizarre, but apparently the regulations are
| written so that customer funds can't be used until the
| trade settles.
|
| Going by what you think is reasonable isn't going to
| answer the legal question.
| totalZero wrote:
| Would you mind quoting that part of "the regulations," or
| at least linking to them and giving a general nudge
| toward the relevant section?
| NovemberWhiskey wrote:
| The whole premise of client asset segregation is that
| failure of the broker should not put the assets of a
| client in jeopardy. This isn't a technical detail of "the
| regulations", it's the entire foundational premise.
|
| The trade is not "done" until it settles. As discussed
| throughout, that's T+2. Prior to settlement, the trade
| can fail (e.g. your counterparty turns out not to have
| the money/stock to fund their side of the trade).
|
| If you really want to read the detail, it's called Rule
| 15c3-3.
| zaroth wrote:
| A lot of people are claiming "customer funds have to be
| segregated" and that "funds can't be used to actually buy
| the security and are not released from the customer
| account until the trade settles".
|
| I think these are massive oversimplifications to the
| point of being useless or outright false.
|
| I suppose if you wanted to learn a little bit about how
| the regulations are actually written, you could start
| here:
|
| https://www.finra.org/sites/default/files/SEA.Rule_.15c3-
| 3.p...
|
| These are just some of the requirements that brokers have
| to "reduce securities to possession or control" for both
| fully-paid or excess margin securities.
|
| Here's my (mostly uneducated) opinion on what is really
| happening. It has roughly nothing to do with Robinhood
| not being able to execute Buy orders because they
| couldn't post the funds required. Because fully-paid
| securities (non-margin) are paid for _with customer
| funds_ , not floated by the broker while they settle.
|
| The problem was that too many shares have been lended out
| to short sellers out from under long positions that are
| now trying to sell.
|
| The hedge funds that borrowed and sold those shares
| simply don't have the cash or credit to buy the shares
| back at the current market price that the rightful owner
| has rightfully now sold. Failing that the broker needs to
| find someone else willing the lend a share the the hedge
| fund. And who would want to lend a share of GME to an
| insolvent short seller?!
|
| So there is a deficiency, but the deficiency is because
| of hedge funds which are now $30B underwater while
| unrelated parties are trying to sell shares that have
| already been sold.
|
| Yes, this is a long way of saying there's a short
| squeeze. But you know the saying "owe the bank $1 million
| you can't pay, that's bad news for you. Owe the bank $100
| million you can't pay, that's bad news for the bank!"
|
| It's a game of musical shares. The brokers that let the
| hedge funds load up on 140% short interest now need to
| either force-liquidate the hedge fund shorts to get back
| the share that's being traded and needs to be delivered
| to Robinhood, or they need to find someone else to borrow
| the share from.
|
| When the broker fails to deliver the share at the time
| the original holder sells it, the broker is now on the
| hook for any price movement that occurs until they can
| deliver. Which of course the hedge fund can't afford, so
| it's lose-lose.
|
| In the end Robinhood disabled the buy button because all
| the shares being sold have been loaned out and shorted,
| there's not enough shares available to borrow, and the
| hedge funds are way past bankruptcy at this point and
| hoping for some massive price reversal or else they take
| a lot of people down with them.
|
| The counterparty risks at this point are extreme. It's
| not Robinhood that's the problem, it's the people selling
| Robinhood shares that they can't actually show a clear
| title on. I think what Robinhood is worried about mostly
| at this point is contagion when the hedge funds holding
| 140% short interest can't afford the $30B bill.
| tedunangst wrote:
| I'm really skeptical that robinhood shut down buys
| because _they_ were the ones worried about counterparty
| risk. That 's kinda out of character. And then extended
| that concern to 50 other stocks.
| tptacek wrote:
| I think the margin stuff is pretty much a red herring.
| The customer's cash doesn't belong to Robinhood.
| Robinhood is required to provide its own cash as
| collateral, because it's ensuring the market against
| itself. Those collateral rules aren't just for margin
| purchases.
|
| Would love to be corrected here if I'm wrong, but I'm not
| sure margin has really much to do with what's going on,
| and it seems to be most of what we're talking about.
| zaroth wrote:
| I think--like most outsiders trying to have a technical
| discussion--you can peel back the onion only so many
| layers.
|
| A true insider would alternatively laugh or cringe at our
| crude analogies and simplifications of what's _really_
| happening inside the factory.
| tptacek wrote:
| Yeah, I'm trying to use more question marks and hedging
| "as I understand its" here. I've pentested huge clearing
| systems before. But I'm not going to lie and say I
| understood what the hell they were doing (also, the
| people at those firms made fun of clearing as the most
| boring conceivable stuff to look at).
|
| But (1) lots of experts keep saying that Robinhood can't
| use customer cash as collateral to DTCC, and (2) DTCC's
| published rules seem to say that Robinhood owes
| collateral margin or not.
|
| So like, I'm willing to bet that the margin stuff is a
| red herring, but I'm not willing to WSB-bet it.
| Tenoke wrote:
| The margin accounts seem to be a small part of it but
| they do tie up RH's cash further thus limiting what they
| have available for collateral.
| totalZero wrote:
| Robinhood Instant means that a customer doesn't
| necessarily need to have settled funds to trade.
|
| https://robinhood.com/us/en/support/articles/deposit-
| money-i...
|
| They call this a "margin" account but FINRA has rules
| about how margin accounts work. Minimum maintenance is
| 25% for long shares, and minimum equity is $2000.
|
| https://www.finra.org/rules-guidance/rulebooks/finra-
| rules/4...
|
| I could envision how Robinhood's margin practices and
| Robinhood Instant contributed greatly to the need to draw
| on credit lines and raise additional funds from
| investors.
| tptacek wrote:
| I think we're talking past each other. I'm saying that,
| according to the rules, even if Robinhood had absolutely
| no margin buying whatsoever, they'd still have
| substantially the same collateral problem. They can't use
| customer funds for DTCC collateral.
| totalZero wrote:
| > even if Robinhood had absolutely no margin buying
| whatsoever, they'd still have substantially the same
| collateral problem
|
| They'd have a less concentrated position in GME, a
| smaller CNS long, and lower peak net settlement debits.
| All of those factors affect capital commitments. They
| also wouldn't have to commit their own capital for
| Robinhood Instant accounts with customer check/ACH
| deposits that haven't cleared. Currently, Robinhood
| Instant means that Robinhood uses up to $1k of its own
| funds per account to clear trades...not DTCC collateral,
| but rather just to pay for the trade.
|
| In the absence of margin, Robinhood doesn't have a
| collateral problem in the sense of effecting transactions
| that may not clear. Rather, it has a liquidity problem.
| Big difference.
|
| The risk to Robinhood from GME buying in margin accounts
| is that they would have a very large net long as a firm,
| and then one day the stock gaps down so quickly --
| perhaps overnight -- that there is no time/opportunity to
| close out margined positions before they lose more than
| their accounts' total equity. That could leave Robinhood
| holding the bag on 75% of the loss assuming minimum
| maintenance margin.
|
| That's why I don't believe margin to be a red herring. It
| directly and indirectly affects the amount of the
| required deposit and the clearing obligations of the
| firm, and also imposes a very large risk upon Robinhood
| in the event of a scenario where GME closes in the after-
| hours session at $300 on a Friday and then reopens at
| $0.40 on Monday morning because the company filed for
| bankruptcy (just an example). That scenario in turn
| reduces the likelihood that Robinhood can borrow from
| banks and investors to infuse itself with the cash
| required to keep its business running.
|
| Someone else posted an article saying that additional
| collateral across all firms due to the r/WSB squeeze is a
| bit less than $8B according to a DTCC spokesman. Not sure
| how much of that is attributable to Robinhood. That
| sounds like a lot of money but it's really not, in the
| world of financial institutions -- especially in today's
| cash-happy low-rates environment. To put it in
| perspective, Melvin Cap got $2.75B overnight, from two
| people.
|
| My own personal gripe about this whole thing is that the
| way Robinhood carried out its business was chiefly
| damaging to its own customers. I also believe they
| shouldn't be allowed to offer "Robinhood Instant" because
| it doesn't appear to line up with federal requirements
| for margin accounts.
| phil21 wrote:
| I believe this is the correct understanding, with the
| minor explicit callout that every dollar RH had to use to
| cover pre-cleared ACH deposits was a dollar they couldn't
| use to put towards backing their DTCC collateral.
|
| So in one way, the influx of new users and new inbound
| money could not have come at a worse time, even though I
| also believe it likely was rather inconsequential in
| comparison to the DTCC requirements.
| PragmaticPulp wrote:
| Robinhood has finite working capital and credit limits.
|
| The more of their capital consumed by margin loans, the
| less available for collateral.
| NovemberWhiskey wrote:
| This is right; in fact the article says "this is not
| about margin accounts".
| totalZero wrote:
| If you think brokers are not allowed to use a customer funds
| to settle that customer's transactions, I've got news for you
| buddy.
| stu2b50 wrote:
| Of course they are allowed to use it to _settle_, but not
| for the clearing fund deposit.
| alisonkisk wrote:
| I read that "cash accounts" don't really exist from the
| _clearing_ perspective, because the broker can 't counts cash
| accounts as part of its collateral.
|
| Cash accounts (which is just a margin account with 100%
| collateral in cash) protect the broken against client default,
| but don't protect the clearinghouse from broker default. It's
| an opaque API wrapper, in programmer language.
| totalZero wrote:
| For cash accounts, the broker already has settled cash when
| the trade is made, and can immediately post that cash to the
| clearinghouse.
| sokoloff wrote:
| The broker cannot use _customer funds_ to post a _broker
| obligation_.
| totalZero wrote:
| The broker would be using customer funds to clear a
| customer trade.
| sokoloff wrote:
| Of course they'd do that when it comes time to actually
| fund the trade. That's not what Robinhood's limitation
| was and not the subject of this article. The funds in
| question required to be posted to DTCC are a _broker
| responsibility_ to serve as mutual insurance wherein the
| risk of a broker failing are shared among the brokers in
| some proportion to the volume and risk that they
| represent. These must be posted using _broker funds_
| (obviously, you can 't protect customers from things
| outside their control by pledging customer money to be
| used in the event of a default).
| totalZero wrote:
| How, pray tell, do you think a broker actually funds an
| unsettled obligation on a cash-secured customer trade?
| sokoloff wrote:
| At this point, I wonder if you're willfully not
| understanding the difference between customer funds for
| settlement and DTCC broker deposits to ensure an
| additional layer of customer protection/confidence,
| possibly because you think it _shouldn't_ be necessary.
|
| In some ways it's worse than the Chesterton's Fence
| parable. You don't see the point of the fence, so you
| pretend that it _already doesn't exist_.
|
| It seems perfectly fair to ask _why_ this required broker
| deposit exists. It seems way less productive to ask
| _whether_ it exists or to pretend it doesn't.
| totalZero wrote:
| Perhaps the part that you're missing is that in addition
| to margin accounts, Robinhood also has accounts that are
| able to trade up to 1k before they are funded (that is to
| say, before the deposits clear). So Robinhood has to lay
| out its own money to clear those trades, as well as
| traditional margin trades where the customer has settled
| equity but the brokerage also carries risk.
|
| BTW, I don't know what that parable is but your
| invocation of it seems like a rather complex way of
| telling me that you think I'm being disingenuous.
| tonfa wrote:
| Not as collateral, it has to be the broker own funds. (It's
| a protection against brokers failing)
| [deleted]
| MrMan wrote:
| Comments that start with saying "I don't buy" the real-world
| non-simple explanation, even in the face of mountains of real
| world evidence, are not in the spirit of any site that pretends
| to be some kind of better place.
|
| Conspiracy fantasies should be moderated down by the
| administrators. "Wide eyed curiosity" comes second to
| pragmatism, realism, lack of narcissism and entitlement.
| vamos_davai wrote:
| There's no difference between conspiracy and hypothesis.
| cromka wrote:
| You mean "conspiracy theory" and "hypothesis". And yes,
| there fundamentally is a difference between theory and
| hypothesis:
|
| https://www.merriam-webster.com/words-at-play/difference-
| bet...
| vlovich123 wrote:
| > Outside of scientific reasoning, "theory" and
| "hypothesis" are often used interchangeably, and "theory'
| can unfortunately be interpreted to mean "less sound" or
| "lightly speculated."
| PragmaticPulp wrote:
| It's scary how much conspiratorial thinking is gaining
| traction in the GameStop story.
|
| Despite the narratives about people buying GameStop for
| altruistic purposes or for sticking it to Wall Street, it's
| obvious that most people bought because they were told the
| trade couldn't fail and this was an easy way to double their
| money (or more).
|
| When it doesn't work out, I'm worried that people will reach
| for more conspiracy theories instead of realizing that the
| latest GME buyers were always guaranteed losses.
| TuringNYC wrote:
| When I get explanations like "you can't buy or sell for
| your own good" on a funded account without leverage, at a
| time where the odds of money were sky high, it does seem
| fishy. People on WSB have been YOLOing entire accounts to
| zero for months, where was the concern when people were
| losing money? Why the concern when they are actually making
| money?
|
| Also, if there is a good regulatory explanation, why not
| just give that, instead of thin statements like "we're
| blocking these trades for your own good." I'm open to
| reasonable explanations with evidence.
| [deleted]
| ahmedalsudani wrote:
| The messaging was not forthcoming, I'll grant you that.
|
| But they are actually correct if you take a step back.
| Protecting the DTCC protects all brokers and thus in turn
| protects their users.
|
| The regulations and the practices followed in the
| industry are to protect against against real scenarios
| which can lead to brokers collapsing and investor funds
| being decimated.
|
| Maybe it would have looked better had robinhood come out
| and said "we don't have enough liquidity", though that's
| still not a reassuring message for their users.
| mancerayder wrote:
| It's puzzling that people find it surprising that the
| situation caused speculation and "conspiracy theories."
|
| It's frustrating that the phrase "conspiracy theory" is
| used as a way to dismiss skepticism. I hear more and more
| hand-wringing that conspiracy theories needs to somehow be
| addressed.
|
| And it's annoying that given how complex the situation is,
| and how little transparency in the market there is, we
| think that one narrative by authorities should be taken at
| face value.
|
| If you truly dislike conspiratorial thinking, then it seems
| the best possible reaction is to reply calmly explaining to
| the conspiratorialists what happened and buttressing
| counter-claims of the skepticism where it exists.
| 13415 wrote:
| Common, I may not know enough about the stock market to be
| opinionated about this case in particular, but when
| literally billions are at stake, conspiracies about mild
| collusion between brokers and market manipulation are
| really not _that_ far-fetched.
| sidibe wrote:
| I remember the MMM ponzi scheme that was in a bunch of
| countries including Nigeria. When these things go south
| people always need an outlet to blame for denying them
| their free money they thought was coming and better if its
| a third party and not themselves or whoever duped them into
| investing. People were furious at editorials or government
| officials trying to dissuade others which may or may not
| have brought it to an end. Here its going to be the brokers
| fault for not being able to let people open more positions,
| otherwise it certainly would have kept going up and
| certainly at some point there would have been a price they
| were willing to sell at.
| Qwertious wrote:
| I like how you criticise the above comment for saying "I
| don't buy" based on high-minded notion of better spirit of
| discussion, and then in your second paragraph imply it's a
| "conspiracy fantasy".
|
| Bonus points for your completely failure to address the
| arguments of the comment.
| MrMan wrote:
| It's not my job to teach everyone about trading operations.
| I am alarmed at the prevalence of anger founded on willful
| ignorance, on this site. I don't have an obligation to
| refute every dumb angry post tit for tat. I am not even
| trying to be "right" I rather want to encourage people not
| to fall prey to the temptation of thinking that you can
| simply scrunch up your face and decide to "not buy" a
| narrative simply because you cannot be bothered to be well
| informed.
| ESTheComposer wrote:
| To be honest it just sounds like you're one of those
| people who goes on social media, makes a claim, then when
| someone asks for evidence you just say "look it up".
| Unless you have something to contribute other than smug
| comments that amount to "look at these dumb plebs who
| know nothing about the market", then please stop posting
| FUD.
| andrethegiant wrote:
| A Soros-owned space laser is a conspiracy theory. Citadel
| forcing Robinhood to disable buys due to their massive short
| position is not.
|
| I feel that many people are lumping hypotheses into the
| conspiratorial bucket because of Qanon and current events.
| Are all skeptics conspiracy theorists?
| necubi wrote:
| The space laser is certainly more outlandish, but both are
| fundamentally the same. They both posit (contra all the
| available evidence!) that sinister forces are behind
| something in the world that you feel has gone wrong.
| [deleted]
| PragmaticPulp wrote:
| > First of all, they limited opening trades for all accounts,
| not just accounts buying on margin or with unsettled funds.
|
| RobinHood's UX was built around the concept of hiding margin
| details from clients. All Robinhood accounts are margin
| accounts by default. Inbound funds transfers give people margin
| buying abilities before the trades arrive.
|
| Is it really so hard to believe that they hadn't pre-planned
| the ability to limit margin purchases on a single stock? This
| is an unprecedented event and it happened very, very fast.
|
| Robinhood likely only had a few options to roll out
| immediately. Let's not pretend they could have reworked their
| trading platform, tested and deployed the changes, and
| implemented the action in a matter of hours.
| TuringNYC wrote:
| If this was the case, why not just provide an honest
| explanation rather than "we're restricting this for your own
| good"
| MattGaiser wrote:
| Because the honest explanation was that they were near
| insolvent for a period.
| dash2 wrote:
| No company likes to say "our clearinghouse doesn't trust us
| to settle our accounts". It makes them look unstable... as
| they probably are. I bet you, RH has been handing out
| margin the same way mortgage sellers handed out loans in
| 2007.
| CivBase wrote:
| If they're not willing to be honest with their customers,
| I'm not willing to sympathize with them when their lies
| result in conspiracy theories. They made their bed.
| MrMan wrote:
| Yes RH is terrible.
| tedunangst wrote:
| Sure, but people should probably know the truth about it
| being incompetence or a conspiracy to save GME shorts
| before they decide to plow even more money into the
| trade.
| dash2 wrote:
| Yeah, I don't sympathize with them either, but I think
| the conspiracy theories are probably false.
| CivBase wrote:
| What they did was still blatant market manipulation, even
| if the conspiracy theories are all wrong and it was
| unintentional. That alone warrants a serious
| investigation and probably the introduction of some new
| market regulations.
| fma wrote:
| LOL but RH is known to be pretty unstable...
|
| "Redditors in the irony-poisoned Wall Street Bets
| (r/wallstreetbets) community discovered an exploit in the
| investing app Robinhood they've named "infinite leverage"
| that enables them to lose huge sums of money at record
| speeds."
|
| https://www.vice.com/en/article/gyz9kj/a-robinhood-
| exploit-l...
| zaroth wrote:
| > _Is it really so hard to believe that they hadn't pre-
| planned the ability to limit margin purchases on a single
| stock?_
|
| Yes, this is impossible to believe. Different stocks already
| have different margin requirements. Turning off margin
| trading for specific stocks is a fundamental system
| requirement.
| tptacek wrote:
| I think all these margin discussions are a red herring. The
| clearinghouse requirements are based on the total number of
| shares sold, not the total sold on margin. As I understand
| it, clearing is mutual insurance against a disaster at the
| brokerage, not against customers randomly defaulting.
| paulgb wrote:
| > If you have a cash account and you buy a stock, your broker
| has plenty of time (2days) and plenty of funds (all of them) to
| clear your trade.
|
| If they have two days to pay, DTCC is taking on some
| counterparty risk. Isn't that reason enough for DTCC to
| increase the deposit requirements when they see risk
| increasing? (Not a rhetorical question, you seem to know what
| you're talking about so I am curious what the answer is.)
| totalZero wrote:
| The purpose of a clearinghouse is to manage that counterparty
| risk prior to settlement, and ensure that settlement occurs
| smoothly. Some clearinghouses like OCC carry counterparty
| risk throughout the life of a trade.
|
| The counterparty in question is the clearing member, ie
| Robinhood. If the trade is fully cash-secured then there is
| no risk that Robinhood will go under because it has 100% of
| the cash required to make good on the trade (assuming they
| still make enough from PFOF to cover their operating costs
| for a couple of days.) And for existing margin accounts, they
| just have to continue the practice of aggressively closing
| positions that fall below maintenance margin.
| tptacek wrote:
| The NSCC formulas for this (I assume these are the relevant
| ones and if not that they're representative) are published.
| You can just go read them. I don't see where they say "if
| trades are made with customer cash and not on margin you
| don't have to account for them in the equity group
| collateral requirement". That also wouldn't make much
| sense; the clearinghouse protects participating firms from
| _each other_ , not just from their customers.
| totalZero wrote:
| Actually, the Clearing Fund Formula accounts for Margin
| Requirement Differential, so margin is indeed a component
| of the amount posted.
|
| More importantly, cash requirement effectively reduces
| the amount of leverage that customers are able to use,
| and that means (A) no additional firm capital needs to be
| lent for purchases of GME or whatever other stock, and
| (B) margin-account customers trade less on a given amount
| of their own capital.
|
| Are you suggesting that Robinhood would be required by
| Procedure XV to post more than $1 for every $1 of GME
| stock that a customer buys in a cash account?
| tptacek wrote:
| I'm not sure I follow why the future actions of Robinhood
| customers matter. They've executed the number of trades
| they've executed, DTCC raises the collateral requirement
| for meme stocks, and now they're on the hook, whether
| stocks were purchased on margin (implicitly or otherwise)
| or not. You've got the rules in front of you. They seem
| to plainly say that Robinhood has to put up collateral
| regardless of whether margin is involved.
|
| Again, I think the margin stuff is mostly a red herring?
| tedunangst wrote:
| I think the suggestion is that RH is required to post $1
| even for cash buys, not just 0.02 or whatever it was
| before.
| kmonsen wrote:
| That is true, and maybe most likely what's happened.
|
| Just realized that DTCC changing the deposit requirements
| seems completely non-transparent and arbitrary (I agree it
| was a plausible reason in this case), abs could be used to
| help their friends in hedge funds that had shorted, out of
| someone paid them to do this.
|
| The fundamental problem is that the stock market has
| substantial different rules, for example see after hours
| trading, which can be used to take margins away from
| unprofessional investors.
| paulgb wrote:
| > Just realized that DTCC changing the deposit requirements
| seems completely non-transparent and arbitrary
|
| There's a difference between something being so esoteric
| that most people don't know about it, and being non-
| transparent. As the article points out, the deposit
| requirements follow a known formula, it's just one that
| most of us had never heard of before all this.
| sokoloff wrote:
| > your broker has plenty of time (2days) and plenty of funds
| (all of them) to clear your trade
|
| I think you're thinking about it wrong. All brokers contribute
| to this posted collateral and those funds, collectively, serve
| as a fund of mutual insurance in the event of a failure or
| near-failure of a participant. These are not "partial payment
| of customer trades, with the rest to come later".
|
| In order to prevent customers from being affected by that near-
| failure, the clearinghouse first goes to that struggling broker
| and then to this mutual insurance fund. _That_ is the reason
| why this must be funded with broker funds rather than customer
| funds, so the fact that you 100% paid for your shares doesn't
| mean that the broker has "all of the funds" required because
| they can't use your money to post this. (Otherwise "to protect
| customers" is not accomplished.)
| ummonk wrote:
| This is misinformation. The DTCC used their discretionary powers
| to jack up the collateral requirements on certain specific stocks
| to 100%, well above what was required by the VaR formula.
|
| For a description of this see e.g.
| https://twitter.com/KralcTrebor/status/1355172567242469377
| franklampard wrote:
| These brokers halted buys of GME
|
| Robinhood Webull M1 Finance Public E-Trade
|
| Does any of the above still restrict trading of those stocks,
| other than Robinhood?
| tgsovlerkhgsel wrote:
| Interactive Brokers blocked share purchases too (the article
| claims they only blocked options), and not just on GME, even for
| Cash accounts (i.e. no margin involved).
| hahajk wrote:
| Yes, we know capital requirements go up, but they cut off buying
| even for those with sufficient money in their accounts. Money
| that was transferred from a user bank account and now (I assume)
| exists in a RH-controlled account. So if RH needed the funds they
| didn't they use the money users already sent them?
|
| The Webull CEO made an offhand comment "we couldn't use funds
| from our users' accounts due to regulatory restrictions." I
| haven't found what restrictions those are (so if you know, thank
| you for sharing!)
|
| I'm guessing the money in user accounts isn't actually held as
| liquid cash. I bet they lend it out like a bank which means a
| 1000% increase in liquidity requirements meant a leveraged bank-
| run situation.
| stu2b50 wrote:
| Brokers can't use client money to make the deposit.
| elihu wrote:
| To me it seems strange that that isn't allowed.
| tzs wrote:
| I know almost nothing about buying/selling stock and brokers.
| (With two exceptions [1], all my investments have been the
| "buy shares of a mutual fund and hold it forever except for
| occasional exchanges with other funds I'm going to hold
| forever, or when I need to make a big purchase like a new
| car" kind of investments). Thus, I'm quite confused here.
|
| What is this "deposit" in this case?
|
| Could someone walk through what happens in this case: I have
| $X at my cash account at a broker, and I direct that broker
| to buy something that will cost $Y (including any broker
| fees, commissions, required tax withholding, etc.), where Y
| <= X.
|
| I presume that ultimately I end up wit the thing I wanted to
| buy, and my cash account ends up with $(X-Y)?
|
| So what happens as a step along the road to making that
| happen that requires the broker to use money that is not
| money from my cash account?
|
| [1] In 1998 or 1999, the newsreader I used on Red Hat started
| corrupting my .newsrc after an update. I tracked it down to a
| change in one of the ctype macros in the C standard library.
| The newsreader assumed that all the flags fit in a char,
| which had been true before the update, but now wasn't. I
| submitted a patch that changed one declaration in the
| newsreader from "char" to "unsigned short". When Red Hat was
| going to IPO, I was surprised to get an email telling me that
| since I was a contributor to Red Hat, I could buy Red Hat
| stock at the IPO price. I bought a few thousand dollars worth
| that morning at $14/share, sold them that afternoon at
| something like $70/share, transferred the money out, and
| never touched my ETrade account again.
|
| Who says submitting patches to open source doesn't pay? :-)
|
| The other time was when T-Mobile gave every customer one
| share of stock. Eventually they got tired of having to deal
| with having a bazillion people who owned one share each of
| their stock, and told us we had to transfer our shares to the
| broker of our choice or sell. I sold.
| db579 wrote:
| Would also like to know the answer to this. From the amount
| of people explaining the nuance of the deposit rules it
| seems many people expect trading to work the way you've
| described. The fact that it (counterintuitively?) doesn't
| seems like it might be a flaw in the system.
| stu2b50 wrote:
| The reason the deposits are necessary is that there is no
| inherent trust between the firms on settlement day. The
| deposits are the Brokers saying, "Hey, trust me, I've got
| everything I need to complete the settlement, here's my
| collateral".
|
| As such, if a Broker doesn't have the funds to complete the
| transaction, you can pull it from their deposits.
|
| Your money doesn't really play a part in this, and indeed
| the illusion of "give $X for Y stock" is just an illusion.
| tzs wrote:
| So if I tell a broker to buy $X worth of some stock for
| me, is what actually happens that the broker buys $X
| worth of that stock using their money, and then when that
| has completed a couple days later the broker takes $X
| from my cash account and transfers the stock to me?
| stu2b50 wrote:
| No, when you tell a broker to buy $X of stock, they send
| a record of that purchase to a clearing firm. The
| clearing firm, in order to make sure none of the Brokers
| becomes insolvent before settlement, requires every
| Broker offer up collateral - it's collateral, it's not
| spent if everything goes well.
|
| It's the SEC requiring brokers offer up insurance in case
| they explode.
|
| Then, 2 days later, your actual money goes to the
| clearing firm and is exchanged for stock.
| crorella wrote:
| Because they wanted the price to go down
| alecco wrote:
| Robinhood had many, many issues before. Very often at very
| critical times when the market moved.
|
| And their business model is a disgrace. As many say, PFOF should
| be illegal.
| gruez wrote:
| >And their business model is a disgrace. As many say, PFOF
| should be illegal.
|
| You get equal or better prices than on the open exchanges
| (NBBO), and they kick back money to the brokers making
| commissions-free trading possible. What's not to love?
| cadence- wrote:
| Interesting explanation. I wonder if hedge funds that short
| enormous amounts of stock include this scenario in their risk
| calculations. I expect that yes, they are well aware that if the
| price of a stocks runs away too much, these mechanisms will force
| brokerages to disallow buying, so that they can buy back the
| stock at lower prices.
|
| However, there is one thing I still don't understand from the
| article. Why were hedge funds allowed to still buy the stock? If
| this liquidity problem really happened as described, shouldn't
| the trading be halted completely? I suspect the answer is that
| they don't use a brokerage to buy and sell stocks. They probably
| have some kind of direct access to stock exchanges so they are
| not bound by the limitations set by brokers.
| stu2b50 wrote:
| Whether or not you were able to buy gamestop was more about how
| wealthy the broker you used was. If you were a retail investor
| on Fidelity, you could even buy options still.
|
| Hedge Funds naturally have, well, wealthy brokers tailored for
| institutional investors.
| MrMan wrote:
| Hedge funds tend not to use shady brokers who don't have strong
| balance sheets and competent risk managers and technologists.
| The list of better brokers is long.
| lordnacho wrote:
| > Why were hedge funds allowed to still buy the stock?
|
| They use a prime broker, which is a fancy way to say Goldmans,
| JPM, Citi, etc's institutional brokers, which also have the
| same relationship with the DTCC. And their prime brokers did
| not leave too little cash at the clearinghouse.
|
| That's if you buy the story here. I'm still mulling it over. I
| used to run hedge funds, and indeed PBed with these big names.
| CivBase wrote:
| This doesn't seem to add to the story. This doesn't explain why
| they had to keep selling. It only explains why continuing to sell
| didn't put them in financial peril.
|
| Robinhood took actions which they knew would manipulate the
| market in a particular way - one which was beneficial to them and
| their business partners. That's why people are upset.
| shakezula wrote:
| That's exactly my problem with it. Why leave sell as an option
| then? Sure; if you can't buy more because you legally can't,
| that's fine. But leaving the sell option on felt planned. I
| would assume in a situation like this it would be most
| responsible to simply disable trading on it entirely until it
| was back to manageable. At least then they would have plausible
| deniability.
| herodotus wrote:
| If a broker blocks selling, and the price drops, there is real
| damage to the holder of the shares. If they block buying, there
| is only a potential hypothetical loss.
| CivBase wrote:
| You're only looking at longs.
|
| If a broker blocks buying and the price goes down, there are
| real benefits to the holders of the shorts.
|
| Hence the concerns of market manipulation.
| JumpCrisscross wrote:
| > _If a broker blocks buying and the price goes down, there
| are real benefits to the holders of the shorts_
|
| Which is not an actual harm to a Robinhood user. Avoiding
| liability means avoiding actual harm.
| CivBase wrote:
| Why is it okay for a broker to facilitate market
| manipulation as long as it doesn't harm their customers?
| If they're benefiting someone (in this case, the short
| sellers), then they must also be harming someone (in this
| case, the short lenders).
| paulgb wrote:
| If they had blocked selling and it later came out that they
| didn't need to, people who had wanted to sell would be
| understandably pissed as well. It's a damned-if-you-do, damned-
| if-you-don't situation.
|
| I think they chose the least-bad of the two paths, because even
| if they blocked their own customers from selling, customers
| holding GME at other firms would be able to sell. Would you
| want to be with a brokerage who blocked you from selling when
| they could have allowed it?
| CivBase wrote:
| I absolutely would prefer that and I don't even own GME.
| Anything else is blatant market manipulation, whether or not
| it's intended.
|
| IMO, it should be illegal to facilitate only selling or only
| buying. Brokers should be forced to offer both or neither.
| shakezula wrote:
| Absolutely. Just imagine the inverse scenario here where
| they had a conflict of interest in a long position and
| turned off selling. Turning off both is fine if they're not
| able to legally handle new buys. But just turning off buys
| is also pretty freaking sus.
| gruez wrote:
| >IMO, it should be illegal to facilitate only selling or
| only buying. Brokers should be forced to offer both or
| neither.
|
| Just because you shut down trading at one brokerage doesn't
| mean the price is frozen. It could still drop like a rock,
| and you'd still end up with a bunch of pissed off customers
| saying that they couldn't exit in time.
| CivBase wrote:
| Yeah, but at least you as a broker wouldn't have a hand
| in the price change. If they piss off their customers who
| wanted to sell, that's just how it is. That will give
| them an incentive to keep both options open instead of
| restricting traders to only buying or only selling when
| it suits them.
| gruez wrote:
| >Yeah, but at least you as a broker wouldn't have a hand
| in the price change. If they piss off their customers who
| wanted to sell, that's just how it is
|
| No, the price change occurred when new money couldn't
| flow into GME, due to deposit requirements. Stopping
| sells when there isn't any technical reason to do so is
| also an intervention, and arguably a bigger one.
|
| > That will give them an incentive to keep both options
| open instead of restricting traders to only buying or
| only selling when it suits them.
|
| And doing the reverse suits the HODLers, who would love
| nothing more than to prevent others from breaking rank
| and tanking the stock price, but sucks for everyone else
| who wants to get off the wild ride. On Thursday MUST
| asset management sold off its stake in GME. If people
| weren't allowed to get out, and it tanked further, I
| could easily imagine accusations that robinhood was doing
| it to the benefit of wall st firms, to eliminate
| competition for sells.
| tonfa wrote:
| You could still buy if you were short (close your
| position). And allegedly there's many more shorts than long
| positions.
| youeseh wrote:
| The order should have come from the SEC to block trading
| across the board. No buying and no selling until the current
| orders are settled and there's liquidity available for more
| trading.
| GNU_James wrote:
| You all know why but are afraid to say it out loud.
| vga805 wrote:
| I'm guessing they don't like the stock?
| tehjoker wrote:
| Okay, but why stop buys instead of freezing buys and sells?
| snomad wrote:
| Similar explanation was posted Jan 28 on twitter by Silent
| Cal[1]. This article and the twitter thread do paint a very
| plausible explanation. And is easy to accept.
|
| OTOH, a potentially far more nefarious, yet plausible, underlying
| motive was posted on /r/wsb today [2] that links GME to
| counterfeiting shorts.
|
| Given Steve Cohen's numerous scandals through the years as
| detailed on wikipedia [3], needing to cover up for counterfeiting
| shorts also seems like a plausible explanation.
|
| I hope the finance committee investigations AOC called for take
| place and consider both points.
|
| * - Not invested in GME, and prohibited from doing so by my
| employer. No intention of committing suicide and happy w/life.
|
| [1] - https://twitter.com/KralcTrebor/status/1354952686165225478
|
| [2] -
| https://www.reddit.com/r/wallstreetbets/comments/l97ykd/the_...
|
| [3] - https://en.wikipedia.org/wiki/Steve_Cohen_(businessman))
| ww520 wrote:
| Isn't counterfeiting shorts like counterfeiting money?
| midasuni wrote:
| A lot harder to prove.
| itronitron wrote:
| http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm.
| ..
| kart23 wrote:
| Is it possible Gamestop is selling back shares that it bought
| back a couple years ago, and we just don't know because they
| are only required to report that quarterly? Their outstanding
| shares used to be above 100 Million, its now around 70.
|
| https://www.fool.com/investing/2019/12/10/gamestop-just-boug...
| ummonk wrote:
| Note that Silent Cal posted an update that the DTCC
| discretionarily upped collateral required for specific stocks
| to 100%, and did so without announcing it to the public.
| https://twitter.com/KralcTrebor/status/1355172567242469377
| franklampard wrote:
| Thanks for sharing. I found it much more logical to believe it
| is illegal manipulation given history.
| lordnacho wrote:
| Surely RH risk management would see that both the 99% VaR and the
| gap risk have jumped, and draw the credit lines before their DTCC
| margin dried up? What's the worst that can happen if you top up
| the account a little more than you need? Whatever you save on
| interest can't be worth the reputation damage?
|
| There must be more to this story, as other brokers got in the
| same pickle. Perhaps it is some modern form of balance management
| that the new guys prefer, akin to just-in-time.
| Traster wrote:
| Not only are they probably not operationally prepared to just
| pull down credit on no notice, but there's an additional risk -
| the member's VAR calc is calculated using a EWMA (exponentially
| weighted moving average) volatlity estimate. What this means is
| that RH can exhaust its entire credit line, and despite
| allowing no additional buys, their deposite required still
| increases because volatility went up. Breaching DTCC's
| requirements with no way to fix the issue.
| soared wrote:
| 3% to 100% collatoral isn't covered by topping of the accounts
| though. RH was doing hundreds of millions (?) in $GME per day,
| so that increased that number from something like $3MM to
| $100MM.
| stu2b50 wrote:
| No one ever accused Robinhood of being competent.
|
| Although I think you're underestimating the difficulty of
| pulling billions of dollars out of nowhere. Robinhood was
| forced to sell _equity_ to meet the deposit requirements - that
| 's a harsh ask.
| lordnacho wrote:
| That is another oddity. If there was no insolvency problem,
| presumeably all that was needed was a loan?
| stu2b50 wrote:
| And they did get a loan[0]. I think you overestimate the
| ability of Robinhood to get an infinite amount of money in
| debt from banks within a few days notice. Then they even
| sold more equity[1].
|
| [0]https://finance.yahoo.com/news/robinhood-said-draw-
| credit-li...
|
| [1]https://www.wsj.com/articles/robinhood-raises-1-billion-
| to-m...
| lordnacho wrote:
| They're a financial institution in the age of zero
| interest, in no danger of defaulting. I mean come on?
|
| You sure it wasn't just money they were about to raise
| anyway? Just jam some friends in pre IPO?
| hsaliak wrote:
| They failed in communication and lost trust. If their platform
| could not scale to the needs of their users, they should come out
| and say it, and should have done so before the fallout.
| [deleted]
| sn41 wrote:
| Never understood bailouts of hedge funds, whether by government
| dole, or by corporate collusion as Robinhood is now doing.
|
| On a fine day, these buffoons are all Ayn Randish free
| marketeers. They should be willing to live by their principles
| even in downturns.
| lordnacho wrote:
| I haven't read the books. Do any of the free market characters
| ever end up failing?
| endtime wrote:
| Yes, at least for a time. In general it's quite rare for a
| book to end with the protagonist failing, but in The
| Fountainhead, IIRC, the protagonist spends an extended period
| of time doing manual labor rather than architecture because
| he cannot practice it freely.
| sn41 wrote:
| No, compassionate society is weak and prevents John Galt from
| achieving his true potential. Wasted 2 of my crucial
| formative years reading those books when I should have been
| studying for university entrance exams.
|
| There are some interesting ideas. But my personal guide is
| Thoreau, who says "that government is best that governs the
| least". I've never heard anyone call Thoreau a libertarian,
| but I'd rather be a Thoreau libertarian than Rand-ian.
| tartoran wrote:
| Never ceases to amaze me Ayn Rand resorted to receive
| social security benefits when she was old and broke, fact
| which makes her philosophy all the weaker. People need a
| safety net because unpredictible things happen that are
| beyond control.
| sn41 wrote:
| I sympathise with her as a person. She went through a lot
| of trials and difficulties during her life. But to deny
| that other people matter in our lives is a strange
| stance. I decided that I don't want to go there. My work
| is to benefit humanity, little though it might be.
| gruez wrote:
| >On a fine day, these buffoons are all Ayn Randish free
| marketeers. They should be willing to live by their principles
| even in downturns.
|
| Is wall st some sort of hive mind? How do you know whether they
| supported the deposit requirements in the first place? What if
| there weren't deposit requirements, and that led to different
| calamity a few years down the line, would everyone just be
| getting upset about the _lack_ of regulation?
| alisonkisk wrote:
| I see no evidence of collusion so far, but if there is any, it
| would be for Randian self interest, so I don't see your point.
| sn41 wrote:
| I was just saying that a short squeeze is a known risk for
| short positions. As a small-scale investor, I also knew that
| Covid and stay-at-home means that a lot more small time
| investors will be involved in 2020-21, skewing market
| valuations in crazy ways. GME was only one manic instance.
| Why was such an issue raised over this particular incident?
| Why call for regulation, and squeezing Robinhood to freeze
| buys?
|
| I am not advocating the buying spree, since a lot of small-
| time investors will get hurt if and when the price comes
| down. The SEC should issue advisories. But Hedge Funds
| shedding tears is hardly justifiable.
| lxe wrote:
| > It is not about margin accounts
|
| > Brokers cannot use client money to satisfy their clearing fund
| obligation.
|
| Let's assume there's no margin, and everyone fronts cash for
| their trades. There's no reason that Robinhood or other broker
| would not use client money for clearing... that's the point of a
| broker.
| [deleted]
| mlthoughts2018 wrote:
| The article is completely wrong. Robinhood did not disable buys
| only, they disabled any trades that took a _net new position_.
| Existing options holders who needed to _buy or sell_ were allowed
| to, and regular retail traders could also _buy or sell_ on the
| other side of those transactions, because they went to _closing
| existing open positions_.
|
| The reason you couldn't buy but you could sell is just the simple
| mechanics of a short squeeze. All the net open positions were
| short sellers needing to buy (e.g. needing retail investors to
| sell) and there was just near zero volume of call options holders
| looking to sell (e.g. needing retail investors to buy) to close
| an existing position.
|
| I feel pretty upset to see the article going into all these
| details of capitalization - that 100% was not the issue and at no
| point did Robinhood "disable buys but not sells." They disabled
| creating net new positions which just happened to have a side-
| effect of disabling buys as a matter of the particular trading
| volume of various option types. If you were a call option holder,
| you could sell (and therefore the other party could buy).
| kyrieeschaton wrote:
| Simultaenous with pausing buys of GME they were allowing accounts
| and positions to be opened and margin trades to occur, so it
| cannot be that they simply needed to limit their capital
| requirement full stop. The capital requirement is a prerequisite
| for being in the business and this is not an unforeseen
| circumstance, it's why they have lines of credit (which in fact
| they did draw on, just not enough to support the business they
| purport to be in) on top of their working capital.
| ppod wrote:
| The article does not really answer the question in the title.
| Yes, it shows why they still had the ability to execute Sells.
| But the question most people have is: If you are forced to halt
| Buys, isn't it fairest to also halt Sells?
|
| Now, I can see the counterargument: if you halt Sells, you are
| effectively preventing people from withdrawing their money from
| Robinhood. But, by allowing Sells (which are being bought by
| another party somewhere) you likely to influence the price, and
| you're putting your customers in a strange position relative to
| clients of other institutions who can still buy, and indeed, buy
| from Robinhood customers. I still haven't seen this question
| properly addressed. What are the precedents? When forced to
| restrict trading because of regulatory obligations in the past,
| has the normal response been to halt all trading or only one
| side?
| alisonkisk wrote:
| This is actual intersting debate. When the exchange itself
| halts, they (necessarily, mathematically) halt buts and sells.
| But there's no correct answer _possible_ for just one
| brokerage.
|
| So now we go meta and ask "should it be legal to be a brokerage
| without a much larger cash cushion than current rules? Or
| should clients be warned about the possibility of freezes like
| this? Or should buyers take responsibility and not put their
| money in discount low-quality brokerages if they want to day-
| trade run hedge-fund style manipulation plays?
|
| All in all, if you hate sleazy hedge funds, you should have any
| sympathy for day traders and squeezers either, as as they
| intentionally are playing the same no-holds-barred game, not
| doing investing as the market system intends.
|
| If you want to hold Melvin accountable _by law_ for alleged
| misdeeds, it 's silly to say the law should _require brokers to
| aid in market manipulation activities against their own
| solvency interests_ , instead of the law should require (and
| enforce) that Melvin do whatever they are doing wrong.
| swampthing wrote:
| https://mobile.reuters.com/article/amp/idUKKCN2253T2
| https://mobile.reuters.com/article/amp/idUSKBN1FT2S4
| tptacek wrote:
| Be careful what you wish for! Levine noted Friday that a huge
| amount of the trading done in GME was institutional. Large
| firms can probably handle whatever collateral requirements
| there will ever be for a specific symbol. Here you have a bunch
| of random people pushing a $15 stock up to $400. Volatility
| makes it impossible for Robinhood to keep transacting in that
| stock. They shut down buys and sells. But trading on GME
| continues elsewhere; in fact, _most_ GME trading has been
| occurring elsewhere. Now: the market crashes (as it inevitably
| must). You got in at $250, cheered as it beat $320, and now the
| stock is heading back to double digits...
| franklampard wrote:
| > stock is heading back to double digits
|
| You think
| tptacek wrote:
| I sure do.
| jpambrun wrote:
| From understanding the issue is that RH didn't have enough
| collateral to execute buys. If they restricted sell on RH in
| the name of symmetry, but other broker with no collateral issue
| would still allow buy and sell the stock would remain volatile.
| In this case, not being able to buy is a nuisance, but won't
| make you loose money directly. Not being able to cash out in
| the event of a steep decline on the other is directly and
| highly prejudicial.
|
| I understand that restricting buys affect the price for those
| who already bought in, but at least they can still cash out..
| stevehawk wrote:
| i'm not an expert in any of this, but I've heard/read multiple
| people comment that there is no situation where you're legally
| allowed to halt sells short of the SEC or market (NYSE/Nasdaq,
| etc) saying so
| midasuni wrote:
| A lot of noise in the press about how awful this was for people
| buying in late.
|
| I don't recall quite as much concern during the last Bitcoin
| bubble. At least GME is actually worth something($5, $10,
| whatever)
|
| If people want to play the lotto or burn a billion dollars to
| send a message, I'm not sure why billionaires would go on cnbc
| angrily shouting it's a "way of attacking wealthy people" if they
| weren't really angry about something.
| bigphishy wrote:
| >If people want to play the lotto or burn a billion dollars to
| send a message I'm not sure why billionaires would go on cnbc
| angrily shouting it's a "way of attacking wealthy people" if
| they weren't really angry about something.
|
| My head hurts trying to read this
| midasuni wrote:
| Billionaires aren't crying when people play the lotto. Or put
| it all on red. Or spend it on weed.
|
| Why is Leon Cooperman so worried about it ending badly for
| the general public. That means the rich will make a killing.
| He wasn't bothered when things ended badly for the general
| public at any other time -- like 2008.
|
| Even if he was really worried about the general public, why
| does he think this is attacking the rich?
| jcaldas wrote:
| _As you can see, buys make this worse, sells make it better.
| Robinhood could not execute buys, because it would increase the
| deposits they 'd need, which they legally must obligate by.
| Sells, on the other hand, do not have this problem. They would
| not push the 95% boundary more to the right._
|
| I have been trying to analyze this Robinhood story in an unbiased
| and objective way. My motivation is that I am interested in
| contemporary history and believe that what we witnessed in these
| past few days is a historical event.
|
| I have a question to those here who are knowledgeable about
| finance and law (I am certainly not).
|
| If my stock trading app stops allowing buying a stock, while
| still allowing selling a stock, even if this is done purely for
| technical reasons (see quote at beginning of this comment), am I
| incurring in market manipulation? To me the answer is evidently
| yes, but I would like to hear other opinions.
| danman114 wrote:
| Any thoughts/comments on the "convenient" timing?
|
| I'm not writing a lot here, first post! Hi! :)
|
| One thing I didn't see mentioned here yet, and what makes look
| suspicious in my eyes, is the timing.
|
| It seemed to me, and I saw this charted in some places afterwards
| (sorry, don't have proper sources right now), that the disabling
| of the options on MULTIPLE brokerages happens almost exactly at
| the same time a heavy ladder attack was started which dropped the
| price significantly from - maybe 300-ish? to 120-ish in minutes.
|
| It looked like stop losses should get triggered and the whole
| market brought to the bottom without the smaller investors a)
| being able to buy the dip and b) being able to rally the price by
| buying back thusly.
|
| All the reasons given for the disabling and more might apply, but
| still this could have been used through the timing as part of a
| multiple pronged attack, seemingly also coordinated with bots
| flooding wsb with disheartening messages and a DDOS attack on
| Reddit's DNS infrastructure, to try and keep individual investors
| alone with their decisions to either hold or keep their profits
| and ruin, thus trying to trigger a panic sale.
|
| What, maybe to get out of some kind of squeeze? :)
|
| It was great to see that most people seem to have held on even
| whilst disconnected from the hivemind for a bit.
| lmc wrote:
| > Any thoughts/comments on the "convenient" timing?
|
| WSB lit a fire, RH had to call the fire department
| uh_uh wrote:
| I don't understand this part:
|
| > Basically, when you submit a trade on a broker, the exchange of
| money for stock doesn't actually happen until 2 days later, and
| the firm that handles that exchange is called a clearing firm.
| Before then, Robinhood just sends records: John bought 2 GME for
| $600, Mary sold 1 GME for $290. If that's all that happened that
| day, then Robinhood would need to provide $310 dollars to the
| clearing firm, and receive 1 stock.
|
| > That's a credit risk - what if Robinhood doesn't have the money
| on settlement? The clearing firm would be on the hook.
|
| Why would the clearing firm be on the hook? Can't they just
| refuse to hand the stocks over if Robinhood doesn't have the
| money to pay for it?
| jMyles wrote:
| Setting aside blame and the speculation about whether this was or
| wasn't intentional manipulation, there's another thing that gives
| me pause:
|
| All of the offered explanations describe scenarios which are not
| possible in a decentralized financial toolchain.
| [deleted]
| Triv888 wrote:
| They do business with a company that is involved in the large
| short position, that is why.
| fthd wrote:
| what's not being discussed here is that Robinhood became their
| own clearing broker in 2018. I'm sure at the time of the launch
| it was celebrated with great fanfare as it would "help the
| consumer" and add to their bottom line. It's not an evil
| conspiracy but it's the typical silicon valley grow at all costs
| mentality. They apparently did not account for the risks of being
| their own clearing broker and having to put up the deposit to the
| DTC before settlement. However, they should have realized in this
| past year that their users have a hive mind and have the same
| collective behavior (which is also why citadel pays them so
| much), so when a stock gets popular, everyone will be on the buy
| side. Other brokers such as webull, were able to reenable trading
| the following day without limits because they use Apex Clearing
| which likely has the ability to collateralize the trades and has
| a more diverse set of trades (buys/sells) that net each other
| out.
|
| Things they could have done to prevent this, that actually would
| have been good for the user, but limited growth is: disabled
| margin trading, reduced account size, use a third party clearing
| broker.
| Thaxll wrote:
| At that point the stock should have been "frozen", if you disable
| buy but not sell it means the stock can only go down.
| fwsgonzo wrote:
| Which should be, and probably is, super duper criminal.
| sidibe wrote:
| Did they block buying, or did they block opening new
| positions (i.e. could shorts still buy to close)? The latter
| is completely consistent and all this outrage would be
| unwarranted.
| rsynnott wrote:
| The latter.
| Murkin wrote:
| Was the buy limit only for GME or all stocks on RobinHood?
|
| If it's the former, how does the article's explanation fits?
| SpicyLemonZest wrote:
| It was for a couple dozen different high volatility stocks.
| DSingularity wrote:
| Is it possible that collateral requirements were raised by
| clearing houses specifically to knock Robinhood retail investors
| out of the game?
| jahlove wrote:
| Would love it if someone would write a detailed article
| addressing the conspiracy Melvin Capital (and others) not exiting
| their short position. Melvin Capital says they did, yet the
| sentiment on virtually all of reddit (not just /r/WSB) is they
| didn't. I haven't found really anything to support reddit's
| conclusion.
| Aunche wrote:
| I'm just a finance enthusiast, so take what I say with a grain
| of salt. Now that GME is clearly overvalued, that makes the
| shorting even more expensive. The borrow fees that Melvin
| capital owes for their shorts are less than the current ones
| (iirc ~25% vs ~50%). If you're a hedge fund that wants to make
| money to short GME, it would make sense to buy the shorts off
| Melvin rather than the public market. Melvin itself does not
| have the liquidity to maintain these shorts, but Point 72 and
| Citadel likely do.
| stu2b50 wrote:
| There wouldn't be much to write about. Hedge Funds are not
| required to disclose their short positions in the US, so no one
| really knew how many shorts they had and of what kind, and no
| one knows if they did indeed close them.
|
| Reddit was speculating based on the lack of a reduction in
| short interest. However, it's hard to determine because a) you
| don't know how many shorts Melvin had b) you don't know how
| many new short positions were created that day
| totalZero wrote:
| also (c) short interest is not a real-time computation.
| [deleted]
| nprz wrote:
| Also trying to understand this. According to S3[0] many short
| positions are still open, but it is unclear if these are the
| original shorts, or new if new shorts were opened at the higher
| price point. In other news, Melvin Capital is down 53%[1]
|
| [0]https://twitter.com/ihors3/status/1355246955874701314
|
| [1]https://www.wsj.com/articles/melvin-capital-lost-53-in-
| janua...
| jahlove wrote:
| thanks for the links. I guess I can't understand that S3
| chart at all, because it looks to me like the "SI Shares"
| have dropped precipitously in the last couple days.
| nprz wrote:
| Yeah, it's a little confusing, SI is on the left. It's
| dropped from 70m to 58m in the past month, but 58m is still
| above the float @ 49.6m [0]
|
| [0]https://www.reddit.com/r/wallstreetbets/comments/ip6jnv/
| the_...
| [deleted]
| cccc4all wrote:
| Melvin Capital claimed they exited all short positions, yet
| there weren't any significant change in short %. By all
| accounts, they had huge percentage of shorts, so them covering
| shorts should have dropped short % down below 100%.
|
| It sounded too much like a PR move to convince WSB that short
| squeeze was over. Would Melvin Capital lie about short
| positions to save $billions of dollars?
|
| Melvin Capital initially claimed their short losses were 30%,
| now they are claiming short losses over 50%. How are they still
| losing money on shorts?
| hntrader wrote:
| RH say they scrambled to organise necessary credit lines in
| response to new DTCC requirements. Well why weren't they in place
| by Monday, Tuesday or Wednesday in the expectation that DTCC
| would increase these requirements? Volumes were already exploding
| with many days of advanced warning and IVs already approaching
| the hundreds of percent. There's a plausible alternative that RH
| is not being entirely truthful, and purposely didn't organise the
| required lines in order to satisfy their biggest customer, so
| they had a legal way to restrict trading. I don't have evidence
| that this is true, but nor would I expect to have this evidence
| at this early point in time.
|
| I believe RH's explanation is probably the truthful one (Hanlon's
| Razor), but some scepticism is warranted.
| karagenit wrote:
| I guess it's possible there is some sort of conspiracy going
| on, but I always like to remember "never attribute to malice
| that which can be adequately explained by stupidity."
| Leparamour wrote:
| Why not both?
| mdoms wrote:
| I don't apply Hanlon's Razor when there are billions of
| insider dollars at stake.
| jrmg wrote:
| > but some scepticism is definitely warranted
|
| What's the alternate explanation in which RH is being
| nefarious? Why would they want to stop buys?
| hntrader wrote:
| The conspiracy theory is that they restricted trading in
| order to crash the GME price, thereby benefiting Citadel.
| There seems to be a "legal" way they could've done this,
| which is failing to be sufficiently capitalized for when the
| DTCC reqs change.
|
| Hanlon's Razor and all, I fully agree, so I think this isn't
| the most likely explanation, but I don't think the prior for
| it is that low either.
| franklampard wrote:
| I wouldn't dismiss that theory as conspiracy theory, given
| Steven cohen's history of convictions.
| hntrader wrote:
| To be fair, that's not pertaining to Citadel (which RH
| sells flow to) but to Point72, a different backer of
| Melvin Capital
| totalZero wrote:
| A bunch of rich people from whom Robinhood takes payment for
| order flow stood to lose money if shorts continued to squeeze
| quickly, and selling pressure from spooked longs provides an
| offer to shorts who need to cover.
| user3939382 wrote:
| This is my leading theory. It's called "plausible deniability".
| When billions of dollars are at stake I don't believe in
| coincidence, especially not when they moved in the direction of
| megapowerful people that includes a guy convicted for insider
| trading.
| ben_w wrote:
| I know literally nothing about the legal landscape here. Are
| they allowed to be dishonest or even misleading in PR
| statements on topics like this? (I'm thinking of how much
| trouble Musk got in for "420").
| josefx wrote:
| > (I'm thinking of how much trouble Musk got in for "420").
|
| Yes, trouble, the kind he could just walk of. Some people
| also call that the cost of doing business.
| mehlmao wrote:
| Tesla is publicly traded, which is why the SEC took action.
| Robinhood was looking to go public, but hasn't done so yet.
| alisonkisk wrote:
| Yes, they are, as you can most easily see because Musk
| getting "punished" didn't stop him from continuing to break
| securities law on Twitter.
|
| The punishments are smaller than the benefits.
|
| I'm not saying Robinhood was breaking the law or lying here
| though.
|
| At any rate, hostile questions on cable TV are not official
| sworn statements under Sarvanes-Oxley or court hearings. It's
| unfair and inappropriate to hold someone to a standard of
| perfection in live hostile questioning on TV.
| TheAnswerMan wrote:
| What if I told you people break the law and are dishonest?
| ben_w wrote:
| I would reply that I am a Bayesian rationalist not a
| Boolean rationalist.
| contravariant wrote:
| I'm not aware of any specific restrictions on PR statements
| so I guess they're allowed to be as (dis)honest as any
| company is allowed to be.
| jrd259 wrote:
| So you accuse the author of bad faith or at best laziness or
| gullibility. You are now obligated to provide superior
| explanation of the trading regulations, not just call names.
| hntrader wrote:
| I tuned down the rhetoric a bit as that's not how I wished it
| to come off. I think the article is very good actually, I
| just wanted to introduce some scepticism regarding the PR
| explanation we're getting at the moment (and there might be
| something I'm overlooking that debunks what I've said, very
| possible).
| tptacek wrote:
| The article you just read points out all the other brokerages
| that had to do the same thing Robinhood did.
| xiphias2 wrote:
| WeBull CEO said that their situation was very different, as
| Robinhood is self clearing and they are not. They were told
| to stop trading. So the situation is not as simple.
| stu2b50 wrote:
| While it's true that Robinhood has its own clearing firm,
| Robinhood securities is a NTCC member and is perusant to
| the same deposit requirements as everyone else.
|
| Just as Apex clearing had to raise capital deposits, so did
| Robinhood securities. That they own the firm just means
| they wouldn't pay the clearing fee in return for funding
| the clearing firm.
| franklampard wrote:
| And they are no longer restricting
| st0neyeye wrote:
| Honestly, I found this article to be of extremely low quality. It
| really doesn't matter why this thing happened.
|
| Adding a plausible or even reasonable explanation for why it
| happened only distracts from the fact that it did happen, and
| retail traders were disadvantaged as a result.
|
| Distractions are not helpful, and can arguably be considered
| shill activity in some respects by muddying the waters, it also
| prevents resolution of the real problems. Please don't add to
| bullshit, there's enough of it on the street after last week.
|
| Any time there are more sellers than buyers the market price will
| go down, these are simple mechanics, easily modeled to a fair
| degree of accuracy, everyone in the market knows this, and this
| loss that played out was tragic because many people were harmed
| in the process by the brokerage exchanges/clearinghouses actions.
|
| That fact, is what is important and why the people responsible
| for these decisions should be held to account.
|
| There need be no conspiracy which many people seem to assume
| based on their posts, the simple fact is people were
| disadvantaged because the rules were changed on them inequitably
| and without notice.
|
| If there was collusion, the SEC should investigate and put people
| in prison for this, not fine them, as to if that will happen
| we'll need to wait and see.
|
| The fact remains, retail traders were disadvantaged and as any
| brokerage firm, if they could no longer trade due to trading
| requirements all trading should have halted on the platform and a
| blanket notice sent to everyone as to why; this is obvious, has
| happened in the past, and obviously this didn't happen this time
| and hedge funds were allowed to close or possibly re-short their
| inherently risky positions while retail investors could only look
| on in shock at being unable to do anything with the rug pulled
| out from under them simply waiting until the restrictions were
| lifted or sell at a loss.
|
| This, in my opinion was criminal and a major breach of the public
| trust, as well as fiduciary responsibility. Even if they have it
| in the user agreement as a legal caveat with vague language, no
| one consents to someone saying after the fact, we're going to
| change the rules when the chips are down and allow your money to
| be stolen, and actually do it, and you hold us harmless or we
| won't offer the service; and that is exactly what happened.
|
| A take it or leave it ultimatum to get you in the door which
| allows shady corporate behavior without court oversight, simply
| based on the fundamental theory that if you agree to a contract
| you can't go back and sue them for loss but the contracts can be
| updated at any time after and by simply clicking/using the
| service you consent is laughable. Lots of issues around this and
| arbitration abound, I won't get any further into contract law,
| I'm not an attorney, its not interesting to me.
|
| What's critical is, a very important line was crossed, and by
| doing what Robinhood and the other firms did, they have
| effectively doomed their businesses.
|
| It doesn't matter if google has reset their reviews, or facebook
| bans groups, it hit the news nationally. Most everyone has heard
| about what happened and while some may not understand the
| implications immediately a simple fact remains.
|
| A brokerage business cannot operate without trust, and because
| some of them allowed a conflict of interest, coupled with their
| own very possible questionable motives and their actions this is
| the expected and predictable result.
|
| I personally didn't participate in the new-tulip mania because it
| doesn't meet my risk profile, but I still pulled all my funds
| from E*trade the moment I heard trades were limited in one
| direction.
|
| I cannot trust any brokerage that would allow only buys and not
| sells for the simple reason that this is a clearly rigged market
| and you can't make money long-term in a rigged market. A casino
| is a rigged market.
|
| The only possibility in a rigged market is what the house allows
| you to make, and companies will always do what's in their own
| best interest, and when the business becomes taking my money as
| long as they can provide a plausible reason for it that passes
| legal muster I have no doubt they can and will do that.
|
| I find the claims of accounts of individuals being liquidated at
| a loss during trade restrictions because they were margin
| accounts by default and the margin requirements suddenly changed,
| troubling to say the least.
|
| Investing is not a casino, and by taking the actions these
| brokers/clearinghouses did to limit trades in only one direction,
| they have shown that these firms think it is, by their actions.
|
| I refuse to do business with any business that I cannot trust
| will follow a very basic duty of care and all of these companies
| have failed in this respect in my eyes.
|
| They also had a fiduciary responsibility to their shareholders
| which they broke when they decided to allow trades in only one
| direction because there will be fallout.
|
| I find it most surprising that there haven't been any shareholder
| lawsuits filed over this because there are plenty of investors in
| these financial service companies that will take a loss as a
| result of these decisions.
|
| Mostly because investors that have been watching this attentively
| who were not involved in the related securities are now moving
| their money from firms they can no longer trust due to the now-
| changed risk profile.
|
| There should be almost no reasonable customer to
| Brokerage/Exchange counter-party risk with 100% backed funds, and
| this profile seems to have suddenly changed.
|
| Simple fact, this didn't need to happen, but for a complex number
| of reasons which are mostly immaterial, it was allowed to happen.
|
| If your the type that wants to go into the why's or hows, focus
| on the root cause, and you need look no further than its because
| no one was regulating market shorts, and the shorts thought they
| could harvest investor money from various securities with
| impunity through sophisticated structured mechanisms to
| manipulate the price down with plausibly legal structures.
|
| It doesn't matter that it happened because of lax reporting
| requirements, no regulation, cheap margin/leverage, or a high
| barrier to countermeasure. It happened.
|
| Everything that happened and continues to happen after is
| immaterial except to show us what has changed and what investors
| will now need to do to adjust for that now changed risk profile.
|
| Edit: on a side note, anyone happen to know why the YC
| edit/update function isn't working? It claims to update the post
| but isn't actually working; I had to delete the post and repost
| to have it actually update for some minor spelling and
| grammatical corrections and to better clarify specific wording to
| be less vague.
| napier wrote:
| It wasn't only Robinhood.
|
| > Bad Brokers - Restricted purchasing of certain tickers E-Toro -
| Proof
|
| E-Trade - Proof
|
| Ally - Proof
|
| Public.com - Proof
|
| Merrill Edge - Proof
|
| IG Broker - Proof
|
| Trade Republic - Proof
|
| Webull - Admitted they were forced to by clearing firm - Clearing
| firm is Apex - They'll be moved to neutral once they publicly
| confirm Apex was sole reason the trades were restricted.
|
| Neutral Brokers - Restricted trading, publicly naming their
| intermediary Freetrade - Proof, blames Barclays - CMO Interview -
| CMO Tweets M1 Finance - Proof - Blames Apex Clearing Trading212 -
| Proof - re-enabled, caused by intermediary - Intermediary is IB
|
| Tastyworks - Proof, blame Apex Clearing Stash - Proof, blamex
| Apex Clearing TD Ameritrade/Canada - Proof - Proof2 - (Margin
| requirements increased, Covered call and short put orders may
| only be placed with a broker and support times are > 2h, other
| trades restricted) - Neutral because they didn't restrict the
| purchase of stocks with cash.
|
| Source:
| https://www.reddit.com/r/stocks/comments/l8rhr3/weekend_gme_...
| DangerousPie wrote:
| You would have thought that article had mentioned that,
| wouldn't you?
| napier wrote:
| It mentions it in passing, at the end, with a spin on the
| facts. The article glosses over the connections that the
| brokerage clearing houses have with hedge funds that likely
| have potentially painful short exposure. It also glosses over
| the consequences of making shares in certain companies sell
| order only. It's not a very good or balanced article.
| platz wrote:
| > While others only halted options
|
| > - Interactive
|
| False, IB halted buys of GME stock even with 100% available cash
| funds
| shrimpx wrote:
| Why was buying with personal cash disabled?
| syntaxing wrote:
| Admittedly I know nothing about the stock market but when your
| decision somehow align with your business decisions and business
| partners interests, it's hard not for people to expect there's a
| more nefarious reason behind it.
| rsynnott wrote:
| Let's say some subreddit convinces a whole town that it would
| be a good idea to turn on all their water taps, and leave them
| on, at the same time. And, as the reservoir drains dry and the
| sewage lines start overflowing, the water company cuts supply.
| And then it turns out that the water company has some vague
| amorphous relationship with a bottled water company. Do you
| assume that the water company shut off supply because everyone
| did something weird and the system was about to stop working,
| or that they did it to benefit the bottled water company?
|
| Like, at some point, "this entity was forced into a position
| where they had to do the thing, but the thing might have
| benefited someone they're connected to, therefore they must
| have done it intentionally for reasons of collusion" looks like
| a pretty flimsy explanation.
| syntaxing wrote:
| While I understand the sentiment of your analogy, I think a
| big part that's missing in your analogy is that the water
| bottle company loses a ton of money (if not bankrupt) if
| everyone keeps their water taps on and they gain a ton of
| money if they turn it off which changes the story completely.
| If I am the water company, and it's in the water bottle
| interests, what stops the water company from simple saying
| "oh we have sewage issues" while the water bottle company
| rakes in the dough.
|
| What I don't get is why Robinhood didn't outright explain
| this at first. It seems like it's a good excuse and they
| announced it right after the media suggested this was the
| possibility.
| hikerclimber wrote:
| 50% of options trading is complete lucky. with robinhood they are
| trying to reduce this.
| ekns wrote:
| It seems to me that the system has way too many incentives for
| collusion across the various levels. Even the DTC is just a
| private corporation apparently?
|
| The incentives make the system, and so should this system be
| rethought from the ground up to align the incentives so that
| never again would this kind of stuff happen againO
|
| See:
| https://old.reddit.com/r/wallstreetbets/comments/l9auf5/impo...
| tiku wrote:
| The stock system is not really equipped to handle large small
| volumes I guess?
| leaferino wrote:
| http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm...
|
| While I'm wary of Robinhood and their reasoning I can believe it
| as they're a new company, but I can also believe that the DTCC is
| involved in all this.
| realmod wrote:
| Naked shorts are already illegal, so if that happened Im pretty
| sure that they will all face severe repercussions. But the 140%
| short interest is very misleading and points to naked shorts
| even though the excessive short interest can explained without
| them.
| kilroy123 wrote:
| Terrifying if true.
| _robbywashere wrote:
| Regardless of which side of this you're on. I think it's pretty
| weird they didn't clearly explain why they disabled buy orders.
| The reason given in the user interface was "volatility", not much
| else.
| xiphias2 wrote:
| ,,Robinhood legally could not submit trades on $GME until they
| could muster the deposits for GME that they needed. ''
|
| This sounds like a liquidity issue, but Robinhood's CEO said in
| the interview that there was no liquidity issue.
|
| The why doesn't matter at this point because Robinhood CEO was
| caught lying by contradicting himself.
| PragmaticPulp wrote:
| It's clear that Robinhood's comms approach was to avoid a bank
| run. They raised a billion dollars of emergency investment
| later that day and also drew down their credit lines. He may
| have been trying to say that they had plenty of money coming,
| but it wasn't available at the right time.
|
| Their comms approach is the type of PR disaster that will be
| studied for years to come.
| jmcqk6 wrote:
| >They raised a billion dollars of emergency investment later
| that day
|
| Kind of unrelated, but I think if "wall street" was really
| upset regarding what RH is doing, this wouldn't have been
| possible.
| xiphias2 wrote:
| It's funny that people were angry for Robinhood not allowing
| buying new options while Robinhood was afraid of just the
| opposite: everybody cashing out.
| skybrian wrote:
| It's not exactly like a bank run in that there doesn't seem
| to be any question of solvency once trading is stopped.
| Customers could always get their money out.
|
| It's more like a denial-of-service attack. Customer orders
| take server-side resources to execute. Except that the server
| resources taken up are literally money, and execution takes
| days. Blocking orders fixes the problem.
|
| They didn't allocate enough server resources (money) to
| execute all requests under extreme load.
|
| Customer money is a separate pool, not used for execution.
| paulgb wrote:
| How would you define a "liquidity issue"? I would define it as
| "current liabilities in excess of current assets", using the
| accounting definitions of each. It's not clear that Robinhood
| was ever in that situation.
|
| Not to defend the RH CEO, who I thought was very poor about
| communicating this, but I don't think that particular sentence
| was a lie.
| mdoms wrote:
| They literally did not have enough money in the bank to
| continue business as usual. If that's not a liquidity issue I
| don't know what is.
| skybrian wrote:
| It wasn't "business as usual," though. It was a huge spike
| in orders that became very expensive to execute.
|
| You could say they didn't provision enough resources to
| handle extreme load.
| xiphias2 wrote:
| They were in it, as they wouldn't have been able to deliver
| the value of the options at that point (that's why they
| needed the cash injection).
|
| The whole stock market industry is based on fractional
| reserves.
| paulgb wrote:
| What do you mean by
|
| > deliver the value of the options
|
| Do you mean they wouldn't be able to give people cash if
| they sold their options?
| [deleted]
| cm2187 wrote:
| > _I would define it as "current liabilities in excess of
| current assets"_
|
| That's solvency, not liquidity. If your liabilities exceed
| your assets you have gone bust.
|
| Liquidity is having the cash to cover your outflows. You may
| have enough assets but if these assets aren't liquid, you
| have a liquidity issue.
| ncallaway wrote:
| > I would define it as "current liabilities in excess of
| current assets"
|
| I don't think this is a good definition.
|
| If I have a $150 electric bill due immediately, no cash, and
| $200,000 of real estate I have a liquidity issue.
|
| This despite the fact that my current assets far exceed my
| current liabilities.
| skybrian wrote:
| If someone tells you to buy the Empire State Building and
| you refuse, do you have a liquidity issue?
|
| They are refusing to do things to prevent liquidity issues.
| Their customers can send requests that cause them to
| temporarily take on more debt. There are particular orders
| that need a lot of money to execute. Block those orders and
| they don't need to borrow the money.
| hehehaha wrote:
| They had to access money for 3-4 days due to (1) surge in
| turnover in regards to GME including weekly option rollovers
| which by Wednesday had ballooned, and (2) influx of new
| accounts opened with instant access to buy meme stocks.
|
| It was a liquidity issue but if he had come on TV and stated
| that, there would have been market collapse and utter chaos. I
| can't understate how close we got to having a big liquidation
| event on the entire market, which we still may depending on how
| this week goes.
| ballark wrote:
| Does this make it okay to lie to the people utilizing your
| services?
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