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Matt Levine had some interesting (and funny!) insights the last time [0] > It is well known that one of the best services a retail broker can provide is not an

Matt Levine had some interesting (and funny!) insights the last time [0] > It is well known that one of the best services a retail broker can provide is not answering the phones during a crash. The market is down, the customers panic, their timing is terrible, they want to sell at the bottom, they call you up to say “sell everything,” you say “we’re sorry all our representatives are assisting other customers, your call is important to us,” they hang up and get distracted, the market rallies, they forget about selling, you have saved them a fortune, good work. [0] https://www.bloomberg.com/opinion/articles/2020-03-03/robinhood-picked-a-bad-day-to-break https://www.bloomberg.com/opinion/articles/2020-03-03/robinh...

frandroid 7y ago
That's amusing, except that the first failure was during a market rally...
- dmix 7y ago
  That is mentioned in the article shortly after this quote...
ajross 7y ago
That's not insight, that's malpractice. I mean, maybe the customers are wrong. But the broker's desire not to execute sell orders and feed a panic is absolutely self-interest, and if they're wrong (and they often are! We had a similar panic just last week that turned out not to have been "the bottom"!) then they've deliberately hurt their customers to try to protect their position in the broader industry. And that's bad. And it's the kind of behavior we tend to see at these overheated moments where the market has gotten away from the fundamentals and all the players are trying to find "tricks" to keep the gravy train rolling.
- totalZero 7y ago
  I don't know a single broker or sales-trader who would intentionally reject orders from a well-meaning customer. Brokerages make money on commissions and order flow when customers trade. The author of this Bloomberg opinion article has a kind of wisenheimer sense of humor and is playing fast and loose with his comments, in an attempt to make a point about the nature of panic. Failure in moments of market stress is the worst way for a brokerage to protect its position in the broader industry, because downtime damages customer confidence (long-term income) in addition to reducing order flow (short-term income). Order flow is more valuable in moments of extreme volatility because spreads widen when the market goes nuts.
  - alasdair_ 7y ago
    >I don't know a single broker or sales-trader who would intentionally reject orders from a well-meaning customer. It happened aplenty in 2008, when banks were rushing to offload toxic crap that they owned on to the market FIRST, and only THEN were they willing to help their customers do the same.
capableweb 7y ago
Seemingly this is the strategy of many Bitcoin exchanges as well, as every time Bitcoin price is going down, mysteriously Coinbase is having issues with their systems.
- seibelj 7y ago
  Everything seems to be going well this time around, huge volumes across the board.
- LeonM 7y ago
  I just happened to have watched The Big Short [0] yesterday. In the movie (based on real events) the same thing happened: during the housing crash suddenly every bank had 'technical issues' when people tried to sell their stocks. [0] https://en.wikipedia.org/wiki/The_Big_Short_(film) https://en.wikipedia.org/wiki/The_Big_Short_(film)
  - globuous 7y ago
    Indeed ! If I remember correctly though, they had difficulties only until they sold all their crap (hence lying to their clients by selling them crap as gold). Once they were freed from their toxic assets, they "allowed" everyone to sell. What a world we live in. Disclaimer: I'm not in finance, don't know much about it, but it's what I understood while watching the movie ;)
    - raducu 7y ago
      This is such an underrated comment! Yeah, right, it's so nice platforms prevent people from selling, just as the big fish unload their own stocks.
      - paulmd 7y ago
        That's the point of cryptocurrency though: a financial world unencumbered by those annoying regulations that protect the buyer. No takebacks. Reality is the regulations on the financial system are a feature. Being able to have charges reversed if I get my card skimmed and someone makes a bunch of charges is a feature. Being able to get my money back if the seller ships me broken goods (or nothing at all) is a feature. Having regulations on banks front-running their customer's transactions is a feature (one that Robinhood unfortunately gets around somehow). Having regulation on securities not being scams is a feature.
searine 7y ago
This was true of stocks, but if you are holding options or other derivatives which are time-dependent then a market being closed is worse case scenario. RH is largely known for their options trading after all. Not being able to exit these high-risk positions won't just bring your account to zero, but potentially put you in the six-figure negative if you are unlucky.
crazygringo 7y ago
I just feel for the smart investors calling up because they want to BUY everything... and can't get through :P
- blantonl 7y ago
  Yep, that's me. I'm pissed that my trading platform is completely hosed this morning. I want to be on the other side of a LOT of trades today and I'm unable.
  - friedman23 7y ago
    What I don't understand is how you didn't consider this possibility when deciding to use robin hood as an investing paltform.
- totalZero 7y ago
  Buying the dip always feels intelligent in a bull market. In a bear market, it's not so wise. The future is unknown to all of us. In some cases, looks are not deceiving. When the market appears to be on the cusp of freefall, it can in fact accelerate downward.
  - dhosek 7y ago
    That happened to me when I bought my first house.
  - arez 7y ago
    "never catch a falling knife"
    - PaulHoule 7y ago
      That's a slogan of pro traders who have three problems: (1) They trade on margin, so huge drops are much more dangerous to them (2) Their boss sees a Profit & Loss for the trading day that evening, if they don't like what they see they might give their portfolio to somebody else. (3) Customers are calling the sales desk and they want to sell; hopefully sales can slow them down, but you may need to sell to pay for redemptions. Many customers may need to sell to rebalance their portfolios, get liquidity, etc. This is a mechanism which can carry instability from one market into another one which would otherwise be doing just fine.
Frost1x 7y ago
As interesting and potentially valid the conclusion presented may be, you should assume you can reasonably control your assets at any given time. Let people sell, that's on them.
- totalZero 7y ago
  You should not assume that you can reasonably control your assets in moments of volatility. You may not be able to control them at all. Market access is a major component of liquidity. If your broker already holds a phone in either hand, he won't be able to pick up your line when the light next to your name flashes. Imagine that you have all of your liquid net worth in GLD and a huge cholera outbreak hits lower Manhattan. Bad shellfish. GLD rallies and you want to close your position and take profits. The problem is, the largest firms that make markets electronically on GLD have sent their employees home and shut down for the week. Their absence from the market makes it difficult for you to get a fair price for your large position. Imagine that you use Verizon for your mobile phone and internet service. You think their service is great, so you buy shares of VZ. One day, Verizon announces that due to a malicious hacker, their network is experiencing cascading nationwide hardware failures that will not be repaired for at least a week. VZ stock plunges, but you can't modify your position because you can't get on the internet or make calls. A less fanciful example would be owning stock when trading has been halted by the exchange. Perhaps there exists a buyer during the halt who would be willing to trade at a price that is favorable to you, but that transaction cannot happen. Tail risk, in some cases, is a scenario where stocks get cheap. In other cases, stocks can't trade at all. (And in the worst of situations, tail risk is a scenario where guns get expensive.)
  - Frost1x 7y ago
    I'd consider all of those example cases where it's not necessarily reasonable to control your assets. I will say the Verizon case is a bit fanciful because it should be pretty easy to hop on another network quickly for most people to bypass that small hurdle... When we're talking about an enterprise scale electronic trading system that should already have tested these sort of load scenarios, especially in a world where AWS/Azure/etc. exist and elastic computing is the target roll out for applications that probably don't even need scaling, that's not a reasonable case. That's a case where something that should already have been planned for and tested thoroughly slipped by. It's especially damaging when it happens repeatedly over a short time span. There's nothing unpredictable here. Management and IT at Robinhood surely read the news and knew there would be massive load today. Surely, someone designing systems and software in this domain understand that the market could be highly volatile and their system needs to be ready for those cases where it's flooded by customer requests or clearly conveyed to customers that it's not ready for such cases.
dehrmann 7y ago
One of the arguments for real estate being a good investment is it's harder to sell.
bonyt 7y ago
Business Adventures has a similar anecdote, referring to the 1962 crash: > "Other firms were less fortunate, and in a number of them confusion gained the upper hand so thoroughly that some brokers, tired of trying in vain to get the latest quotations on stocks or to reach their partners on the Exchange floor, are said to have simply thrown up their hands and gone out for a drink. Such unprofessional behavior may have saved their customers a great deal of money."
SilasX 7y ago
Alternatively, what about something like, "Oh, hey, we saw your message but we were just too overwhelmed to execute it. We did however, manage to do the next best thing, which was to purchase an option, expiring today, to sell at the prevailing price at the time of your call, and, to make things right, we'll go ahead and exercise that option, unless you'd prefer we just debit you the cost of the option and let it expire without exercise?" 'Debit! Debit! Just debit!'
tlb 7y ago
And yet, every single customer will be convinced that they lost money by being blocked.
siruncledrew 7y ago
Honestly, I think this is BS that a broker/platform can just cut off investors from making buy/sell decisions when it’s inconvenient (unprofitable) to handle. Brokerages aren’t doing investors any favors that are purposefully trying to buy a dip or sell for cash, they are only doing themselves favors as the middle man. Lame arguments from brokerages don’t change that. Has there been a recent case of “unexpected” downtime during a huge market rally?

frandroid 7y ago

That's amusing, except that the first failure was during a market rally...

dmix 7y ago
That is mentioned in the article shortly after this quote...

ajross 7y ago

That's not insight, that's malpractice. I mean, maybe the customers are wrong. But the broker's desire not to execute sell orders and feed a panic is absolutely self-interest, and if they're wrong (and they often are! We had a similar panic just last week that turned out not to have been "the bottom"!) then they've deliberately hurt their customers to try to protect their position in the broader industry. And that's bad. And it's the kind of behavior we tend to see at these overheated moments where the market has gotten away from the fundamentals and all the players are trying to find "tricks" to keep the gravy train rolling.

totalZero 7y ago
I don't know a single broker or sales-trader who would intentionally reject orders from a well-meaning customer. Brokerages make money on commissions and order flow when customers trade. The author of this Bloomberg opinion article has a kind of wisenheimer sense of humor and is playing fast and loose with his comments, in an attempt to make a point about the nature of panic. Failure in moments of market stress is the worst way for a brokerage to protect its position in the broader industry, because downtime damages customer confidence (long-term income) in addition to reducing order flow (short-term income). Order flow is more valuable in moments of extreme volatility because spreads widen when the market goes nuts.
- alasdair_ 7y ago
  >I don't know a single broker or sales-trader who would intentionally reject orders from a well-meaning customer. It happened aplenty in 2008, when banks were rushing to offload toxic crap that they owned on to the market FIRST, and only THEN were they willing to help their customers do the same.

capableweb 7y ago

Seemingly this is the strategy of many Bitcoin exchanges as well, as every time Bitcoin price is going down, mysteriously Coinbase is having issues with their systems.

seibelj 7y ago
Everything seems to be going well this time around, huge volumes across the board.
LeonM 7y ago
I just happened to have watched The Big Short [0] yesterday. In the movie (based on real events) the same thing happened: during the housing crash suddenly every bank had 'technical issues' when people tried to sell their stocks. [0] https://en.wikipedia.org/wiki/The_Big_Short_(film) https://en.wikipedia.org/wiki/The_Big_Short_(film)
- globuous 7y ago
  Indeed ! If I remember correctly though, they had difficulties only until they sold all their crap (hence lying to their clients by selling them crap as gold). Once they were freed from their toxic assets, they "allowed" everyone to sell. What a world we live in. Disclaimer: I'm not in finance, don't know much about it, but it's what I understood while watching the movie ;)
  - raducu 7y ago
    This is such an underrated comment! Yeah, right, it's so nice platforms prevent people from selling, just as the big fish unload their own stocks.
    - paulmd 7y ago
      That's the point of cryptocurrency though: a financial world unencumbered by those annoying regulations that protect the buyer. No takebacks. Reality is the regulations on the financial system are a feature. Being able to have charges reversed if I get my card skimmed and someone makes a bunch of charges is a feature. Being able to get my money back if the seller ships me broken goods (or nothing at all) is a feature. Having regulations on banks front-running their customer's transactions is a feature (one that Robinhood unfortunately gets around somehow). Having regulation on securities not being scams is a feature.

searine 7y ago

This was true of stocks, but if you are holding options or other derivatives which are time-dependent then a market being closed is worse case scenario. RH is largely known for their options trading after all. Not being able to exit these high-risk positions won't just bring your account to zero, but potentially put you in the six-figure negative if you are unlucky.

crazygringo 7y ago

I just feel for the smart investors calling up because they want to BUY everything... and can't get through :P

blantonl 7y ago
Yep, that's me. I'm pissed that my trading platform is completely hosed this morning. I want to be on the other side of a LOT of trades today and I'm unable.
- friedman23 7y ago
  What I don't understand is how you didn't consider this possibility when deciding to use robin hood as an investing paltform.
totalZero 7y ago
Buying the dip always feels intelligent in a bull market. In a bear market, it's not so wise. The future is unknown to all of us. In some cases, looks are not deceiving. When the market appears to be on the cusp of freefall, it can in fact accelerate downward.
- dhosek 7y ago
  That happened to me when I bought my first house.
- arez 7y ago
  "never catch a falling knife"
  - PaulHoule 7y ago
    That's a slogan of pro traders who have three problems: (1) They trade on margin, so huge drops are much more dangerous to them (2) Their boss sees a Profit & Loss for the trading day that evening, if they don't like what they see they might give their portfolio to somebody else. (3) Customers are calling the sales desk and they want to sell; hopefully sales can slow them down, but you may need to sell to pay for redemptions. Many customers may need to sell to rebalance their portfolios, get liquidity, etc. This is a mechanism which can carry instability from one market into another one which would otherwise be doing just fine.

Frost1x 7y ago

As interesting and potentially valid the conclusion presented may be, you should assume you can reasonably control your assets at any given time. Let people sell, that's on them.

totalZero 7y ago
You should not assume that you can reasonably control your assets in moments of volatility. You may not be able to control them at all. Market access is a major component of liquidity. If your broker already holds a phone in either hand, he won't be able to pick up your line when the light next to your name flashes. Imagine that you have all of your liquid net worth in GLD and a huge cholera outbreak hits lower Manhattan. Bad shellfish. GLD rallies and you want to close your position and take profits. The problem is, the largest firms that make markets electronically on GLD have sent their employees home and shut down for the week. Their absence from the market makes it difficult for you to get a fair price for your large position. Imagine that you use Verizon for your mobile phone and internet service. You think their service is great, so you buy shares of VZ. One day, Verizon announces that due to a malicious hacker, their network is experiencing cascading nationwide hardware failures that will not be repaired for at least a week. VZ stock plunges, but you can't modify your position because you can't get on the internet or make calls. A less fanciful example would be owning stock when trading has been halted by the exchange. Perhaps there exists a buyer during the halt who would be willing to trade at a price that is favorable to you, but that transaction cannot happen. Tail risk, in some cases, is a scenario where stocks get cheap. In other cases, stocks can't trade at all. (And in the worst of situations, tail risk is a scenario where guns get expensive.)
- Frost1x 7y ago
  I'd consider all of those example cases where it's not necessarily reasonable to control your assets. I will say the Verizon case is a bit fanciful because it should be pretty easy to hop on another network quickly for most people to bypass that small hurdle... When we're talking about an enterprise scale electronic trading system that should already have tested these sort of load scenarios, especially in a world where AWS/Azure/etc. exist and elastic computing is the target roll out for applications that probably don't even need scaling, that's not a reasonable case. That's a case where something that should already have been planned for and tested thoroughly slipped by. It's especially damaging when it happens repeatedly over a short time span. There's nothing unpredictable here. Management and IT at Robinhood surely read the news and knew there would be massive load today. Surely, someone designing systems and software in this domain understand that the market could be highly volatile and their system needs to be ready for those cases where it's flooded by customer requests or clearly conveyed to customers that it's not ready for such cases.

dehrmann 7y ago

One of the arguments for real estate being a good investment is it's harder to sell.

bonyt 7y ago

Business Adventures has a similar anecdote, referring to the 1962 crash: > "Other firms were less fortunate, and in a number of them confusion gained the upper hand so thoroughly that some brokers, tired of trying in vain to get the latest quotations on stocks or to reach their partners on the Exchange floor, are said to have simply thrown up their hands and gone out for a drink. Such unprofessional behavior may have saved their customers a great deal of money."

SilasX 7y ago

Alternatively, what about something like, "Oh, hey, we saw your message but we were just too overwhelmed to execute it. We did however, manage to do the next best thing, which was to purchase an option, expiring today, to sell at the prevailing price at the time of your call, and, to make things right, we'll go ahead and exercise that option, unless you'd prefer we just debit you the cost of the option and let it expire without exercise?" 'Debit! Debit! Just debit!'

tlb 7y ago

And yet, every single customer will be convinced that they lost money by being blocked.

siruncledrew 7y ago

Honestly, I think this is BS that a broker/platform can just cut off investors from making buy/sell decisions when it’s inconvenient (unprofitable) to handle. Brokerages aren’t doing investors any favors that are purposefully trying to buy a dip or sell for cash, they are only doing themselves favors as the middle man. Lame arguments from brokerages don’t change that. Has there been a recent case of “unexpected” downtime during a huge market rally?