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Matt Levine opined (tongue in cheek, as is his usual style) that Robinhood may have thought that “Robinhood Checking & savings” was distinguishable from a check

Matt Levine opined (tongue in cheek, as is his usual style) that Robinhood may have thought that “Robinhood Checking & savings” was distinguishable from a checking and savings bank account and so could be regulated differently because of the ampersand, in a previous “money stuff” “”” There is a lot of confusion about what Robinhood’s thing is. Delightfully, it is called “Robinhood Checking & Savings,” apparently because calling it a “checking account” or a “savings account” would come too close to implying that it is a real bank account insured by the Federal Deposit Insurance Corp., while “checking & savings” is not a thing and so does not carry that implication. A magic ampersand! “”” https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-needed-some-pretend-traders https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-n...

jl2718 8y ago
Lots of brokerages have money market accounts that pay interest, allow checking and debit cards, and are SIPC-protected. What makes this different? The name? The rate? The challenge to incumbents? Seems Like the salty response of regulatory capture.
- ineedasername 8y ago
  According to the president of SIPC, it's that they were marketing it as sonething that required no investment. As such, it's not in line with what SIPC covers. As for money market, it might look similar to a money market account, but it isn't one, so it's not covered by FDIC either (money markets are)
  - plewis_ 8y ago
    Money markets are not covered by the FDIC or NCUA. [1] During the financial crisis, the Reserve Primary Fund "broke the buck" and lost principal for investors. [2] [1] https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-market-account-en-915/ https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-mar... [2] https://en.wikipedia.org/wiki/Reserve_Primary_Fund https://en.wikipedia.org/wiki/Reserve_Primary_Fund
    - ineedasername 8y ago
      Nearly the very first line in your first link states they are covered by FDIC or NCUA, depending on whether it's a bank or credit union: Like a regular savings account, a money market account at a bank is insured by the Federal Deposit Insurance Corporation (FDIC)... Where they are not insured is in a Brokerage firm, like Robinhood.
      - barbecue_sauce 8y ago
        Weren't they partnering with Sutton Bank for the debit offering? I assumed that my money would actually be held by Sutton, similar to how my Fidelity cash management account is held in an actual bank that is not branded as Fidelity (which leads to some confusion when doing transfers).
      - plewis_ 8y ago
        You're right, I was confusing a money market mutual fund with a bank money market account.
- ASinclair 8y ago
  > What makes this different? The intent. The SIPC will insure the funds if their purpose is to be exchanged for securities as some point.
  - notyourday 8y ago
    This is weaseling out. The reason why people move cash into a brokerage account is because they intend to invest it at some point in future. If I intend to invest my coverage limit amount at some point in future but for now I'm using it as a place to dump my cash into and use it as a DDA, i absolutely fall under that umbrella. The reason why SIPC is having a fit is because someone who is supposed to be fleecing the retail clients is also planning on fleecing those those business is fleecing retail clients.
    - ineedasername 8y ago
      The reason why people move cash into a brokerage account is because they intend to invest it at some point in future. This is the problem. Robinhood is marketing the product to people who have no intention of investing. You're taking a very conspiracy-theory view of the situation. If there were an agenda to maliciously over-regulate Robinhood, it could have been executed well before this point. The fact is that Robinhood was trying to introduce a novel product that doesn't neatly fall into pre-existing categories that benefit from insurance protection. (It's great they're trying this-- I hope it succeeds!) But they appear to have done this without contacting SIPC. Had they done so up front (as they're now doing) they probably could have massaged the marketing and legal details appropriately (as I expect they will do).
  - adrr 8y ago
    Funds are invested to be able to get that 3% return. It’s like the sweep accounts for your brokerage are put into money markets to get higher interest. Cash isn’t just sitting there.
    - dwild 8y ago
      Disclaimer: this is how I understands all this, I could be wrong though > Funds are invested to be able to get that 3% return. If they are, then they are not insured either. SIPC doesn't insure bad investment decision, thus if the 3% return fail, you would lose money. The SIPC protect the cash that is stored there which you are going to invest at some point. Let say you put 1000$ there and you invest 200$, it's alright, theses 800$ are protected whatever happens, but if you put 1000$ there but wasn't planning to invest anything, then it's not alright and this is the issue. It's mostly a semantic point, but that semantic is what make it manageable for the SIPC.
- williamscales 8y ago
  You're being downvoted, likely due to your tone, but I'm not sure the information has been spread widely. Those accounts are insured by SIPC because the funds will be used to purchase securities. This is the distinction.
  - vasilipupkin 8y ago
    right. They will rebrand the offering in a way that will be covered by SIPC, but the offering will still most likely happen
    - williamscales 8y ago
      Yep. I am curious if they will be able to remake the offering in a meaningful way such that it will be insured by the SIPC and still be a product substantially similar to what was originally offered. I imagine the SIPC wouldn't be overly amused if they see a thinly veiled pretense. The other investment firms that offer interest paying checking seem to do it via accounts at other banks that are FDIC insured.

jl2718 8y ago

Lots of brokerages have money market accounts that pay interest, allow checking and debit cards, and are SIPC-protected. What makes this different? The name? The rate? The challenge to incumbents? Seems Like the salty response of regulatory capture.

ineedasername 8y ago
According to the president of SIPC, it's that they were marketing it as sonething that required no investment. As such, it's not in line with what SIPC covers. As for money market, it might look similar to a money market account, but it isn't one, so it's not covered by FDIC either (money markets are)
- plewis_ 8y ago
  Money markets are not covered by the FDIC or NCUA. [1] During the financial crisis, the Reserve Primary Fund "broke the buck" and lost principal for investors. [2] [1] https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-market-account-en-915/ https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-mar... [2] https://en.wikipedia.org/wiki/Reserve_Primary_Fund https://en.wikipedia.org/wiki/Reserve_Primary_Fund
  - ineedasername 8y ago
    Nearly the very first line in your first link states they are covered by FDIC or NCUA, depending on whether it's a bank or credit union: Like a regular savings account, a money market account at a bank is insured by the Federal Deposit Insurance Corporation (FDIC)... Where they are not insured is in a Brokerage firm, like Robinhood.
    - barbecue_sauce 8y ago
      Weren't they partnering with Sutton Bank for the debit offering? I assumed that my money would actually be held by Sutton, similar to how my Fidelity cash management account is held in an actual bank that is not branded as Fidelity (which leads to some confusion when doing transfers).
    - plewis_ 8y ago
      You're right, I was confusing a money market mutual fund with a bank money market account.
ASinclair 8y ago
> What makes this different? The intent. The SIPC will insure the funds if their purpose is to be exchanged for securities as some point.
- notyourday 8y ago
  This is weaseling out. The reason why people move cash into a brokerage account is because they intend to invest it at some point in future. If I intend to invest my coverage limit amount at some point in future but for now I'm using it as a place to dump my cash into and use it as a DDA, i absolutely fall under that umbrella. The reason why SIPC is having a fit is because someone who is supposed to be fleecing the retail clients is also planning on fleecing those those business is fleecing retail clients.
  - ineedasername 8y ago
    The reason why people move cash into a brokerage account is because they intend to invest it at some point in future. This is the problem. Robinhood is marketing the product to people who have no intention of investing. You're taking a very conspiracy-theory view of the situation. If there were an agenda to maliciously over-regulate Robinhood, it could have been executed well before this point. The fact is that Robinhood was trying to introduce a novel product that doesn't neatly fall into pre-existing categories that benefit from insurance protection. (It's great they're trying this-- I hope it succeeds!) But they appear to have done this without contacting SIPC. Had they done so up front (as they're now doing) they probably could have massaged the marketing and legal details appropriately (as I expect they will do).
- adrr 8y ago
  Funds are invested to be able to get that 3% return. It’s like the sweep accounts for your brokerage are put into money markets to get higher interest. Cash isn’t just sitting there.
  - dwild 8y ago
    Disclaimer: this is how I understands all this, I could be wrong though > Funds are invested to be able to get that 3% return. If they are, then they are not insured either. SIPC doesn't insure bad investment decision, thus if the 3% return fail, you would lose money. The SIPC protect the cash that is stored there which you are going to invest at some point. Let say you put 1000$ there and you invest 200$, it's alright, theses 800$ are protected whatever happens, but if you put 1000$ there but wasn't planning to invest anything, then it's not alright and this is the issue. It's mostly a semantic point, but that semantic is what make it manageable for the SIPC.
williamscales 8y ago
You're being downvoted, likely due to your tone, but I'm not sure the information has been spread widely. Those accounts are insured by SIPC because the funds will be used to purchase securities. This is the distinction.
- vasilipupkin 8y ago
  right. They will rebrand the offering in a way that will be covered by SIPC, but the offering will still most likely happen
  - williamscales 8y ago
    Yep. I am curious if they will be able to remake the offering in a meaningful way such that it will be insured by the SIPC and still be a product substantially similar to what was originally offered. I imagine the SIPC wouldn't be overly amused if they see a thinly veiled pretense. The other investment firms that offer interest paying checking seem to do it via accounts at other banks that are FDIC insured.