7 ms·

I hope they aren't insolvent yet, there's a 3-6 business day waiting period for transferring your positions/balances to a different broker with ACATS. Does any

I hope they aren't insolvent yet, there's a 3-6 business day waiting period for transferring your positions/balances to a different broker with ACATS. Does anyone know what happens to any open positions in the event that they do become non-operational?

kchoudhu 7y ago
Your positions are safe in segregated accounts. Of course, that's what everyone thought about MFGlobal too. Personally, I'd get my funds off the meme brokerage and on to a real trading platform.
JumpCrisscross 7y ago
> I hope they aren't insolvent This smells like an unexpected collateral call. Their maxing out the line is material for estimating operational continuity. But given the market's volatility, I wouldn't read it as a solvency problem per se. > Does anyone know what happens to any open positions in the event that they do become non-operational? The SIPC [1] insures deposits up to $500,000. [1] https://www.sipc.org https://www.sipc.org
- colechristensen 7y ago
  Almost the same thing, but this seems like existing collateral requirements being met for exceptional usage/volume (and pulling it from a purpose-created credit line instead of a corporate account with a different purpose)
  - JumpCrisscross 7y ago
    > this seems like existing collateral requirements being met for exceptional usage/volume Brokerages, particularly discount brokerages, are leveraged beasts. When prices move, they have to post collateral. The brokerage has to then make up that deficit by calling customers' capital and/or liquidating securities. Between those two, the brokerage has to draw on reserves and, lacking that, borrow. If it can't, it goes into receivership.
piyh 7y ago
https://en.wikipedia.org/wiki/Securities_Investor_Protection_Corporation#Functions https://en.wikipedia.org/wiki/Securities_Investor_Protection... If covered by SIPC, you get up to $500,000 back.
- rchaud 7y ago
  In a worst-case scenario, how long would it take to get the money back if SIPC needs to step in and administer the disbursements?
Ameo 7y ago
What would even lead you to believe they are in danger of becoming insolvent? They had some severe technical issues and a ridiculously long downtime yes, but at the end of the day their company is still operating just the same as before.
- brenden2 7y ago
  There are a lot of unhappy customers which are probably trying to get all of their money out of Robinhood ASAP, myself included. It's not unthinkable that they may run into problems and become insolvent due to the unexpected outflows.
  - rglover 7y ago
    You're underestimating the value of convenience for most folks. I'd venture a guess that a lot of Robinhood's users are typical retail investors, some pretending to be day-traders. Most will talk big about leaving and then end up staying put anyway because it's easier than jumping ship.
  - rwmj 7y ago
    It might be a naive question, but if you buy shares through Robinhood then don't you just own those shares? It might take some time to transfer them to your preferred broker, but I don't understand why you'd lose anything in an insolvency. Plus any cash you had would be held in a customer account, so again it's simply a matter of dividing up that cash between customers according to their balances. (Note: I've never used Robinhood, so I'm assuming they're a regular stockbroker with added Silicon Valley hype, rather than something else)
    - yellowapple 7y ago
      I think that is indeed the case for actual shares (I was certainly able to participate in Rite-Aid's most recent Board of Directors election, solely based on the shares I bought through Robinhood), but I'm curious about how it'd apply to cryptocurrency, since Robinhood (last I checked) doesn't expose the private keys for the underlying wallets or otherwise offer a mechanism to transfer crypto assets out of Robinhood. Not that it really matters for the, what, $2 I put into Dogecoin, but still.
Vadoff 7y ago
They should make it illegal to gamble with your customers' balances and risk going insolvent.
- brenden2 7y ago
  Robinhood makes money by tailgating your orders and selling your trade history to hedge funds et al. If they make too many risky moves, it's possible that they could run out of money very quickly. That, combined with the panic from the 3 days of outages sounds like a very bad recipe to me. EDIT: changed frontrunning -> tailgating.
  - mason55 7y ago
    > frontrunning your orders That's a pretty serious criminal allegation, do you have any more info? > and selling your trade history to hedge funds I have not heard about this either, do you have more info? The main way that I'm aware of that Robinhood makes money is payment for order flow. The idea is that HFT firms want make risk-free money by providing liquidity without taking a position (via the bid/ask spread). The problem in the larger market is that every once in awhile the price will move against the HFT firm because some other market participant knows something they don't, and so they get caught holding equities that they didn't want to hold. Instead, they pay Robinhood to send them order flow from retail customers who are unlikely to actually know anything and should have approximately even/random orders on either side of the bid/ask spread. Orders still have to be executed at the best possible price though, they can't send your order to Citadel and have Citadel charge you $0.02/share more than what you could get from someone else.
    - brenden2 7y ago
      It's not criminal in any way, it's actually pretty common for brokers to do this, particularly the free or low-cost ones. Call it market making if you want, but it's essentially the same mechanics.
      - judge2020 7y ago
colechristensen 7y ago
SIPC insurance protects you from any brokerage insolvency, up to $500k I believe. (not to mention a pile of laws and regulations to prevent risks of insolvency) I would suppose drawing on a credit line like that would have something to do with maintaining adequate funds in various accounts for settlement of funds transfers and stock transaction as well as the various margin products that brokerages have during a usage spike – without touching corporate accounts for raised funds and various other capital sources. I have no knowledge of the situation but it seems like they pulled in cash from a credit line created for this exact purpose to act as a buffer. Under the hood of all of these banks and brokerages are a series of settlement periods and bank accounts shared at different firms. You end up needing buffer cash because nothing is instant, you want to keep that to a minimum, and during a usage spike you have to add to the buffer to make sure nothing goes negative. Just the underlying mechanics of banking which has nothing at all to do with the firms financial health.

kchoudhu 7y ago

Your positions are safe in segregated accounts. Of course, that's what everyone thought about MFGlobal too. Personally, I'd get my funds off the meme brokerage and on to a real trading platform.

JumpCrisscross 7y ago

> I hope they aren't insolvent This smells like an unexpected collateral call. Their maxing out the line is material for estimating operational continuity. But given the market's volatility, I wouldn't read it as a solvency problem per se. > Does anyone know what happens to any open positions in the event that they do become non-operational? The SIPC [1] insures deposits up to $500,000. [1] https://www.sipc.org https://www.sipc.org

colechristensen 7y ago
Almost the same thing, but this seems like existing collateral requirements being met for exceptional usage/volume (and pulling it from a purpose-created credit line instead of a corporate account with a different purpose)
- JumpCrisscross 7y ago
  > this seems like existing collateral requirements being met for exceptional usage/volume Brokerages, particularly discount brokerages, are leveraged beasts. When prices move, they have to post collateral. The brokerage has to then make up that deficit by calling customers' capital and/or liquidating securities. Between those two, the brokerage has to draw on reserves and, lacking that, borrow. If it can't, it goes into receivership.

piyh 7y ago

https://en.wikipedia.org/wiki/Securities_Investor_Protection_Corporation#Functions https://en.wikipedia.org/wiki/Securities_Investor_Protection... If covered by SIPC, you get up to $500,000 back.

rchaud 7y ago
In a worst-case scenario, how long would it take to get the money back if SIPC needs to step in and administer the disbursements?

Ameo 7y ago

What would even lead you to believe they are in danger of becoming insolvent? They had some severe technical issues and a ridiculously long downtime yes, but at the end of the day their company is still operating just the same as before.

brenden2 7y ago
There are a lot of unhappy customers which are probably trying to get all of their money out of Robinhood ASAP, myself included. It's not unthinkable that they may run into problems and become insolvent due to the unexpected outflows.
- rglover 7y ago
  You're underestimating the value of convenience for most folks. I'd venture a guess that a lot of Robinhood's users are typical retail investors, some pretending to be day-traders. Most will talk big about leaving and then end up staying put anyway because it's easier than jumping ship.
- rwmj 7y ago
  It might be a naive question, but if you buy shares through Robinhood then don't you just own those shares? It might take some time to transfer them to your preferred broker, but I don't understand why you'd lose anything in an insolvency. Plus any cash you had would be held in a customer account, so again it's simply a matter of dividing up that cash between customers according to their balances. (Note: I've never used Robinhood, so I'm assuming they're a regular stockbroker with added Silicon Valley hype, rather than something else)
  - yellowapple 7y ago
    I think that is indeed the case for actual shares (I was certainly able to participate in Rite-Aid's most recent Board of Directors election, solely based on the shares I bought through Robinhood), but I'm curious about how it'd apply to cryptocurrency, since Robinhood (last I checked) doesn't expose the private keys for the underlying wallets or otherwise offer a mechanism to transfer crypto assets out of Robinhood. Not that it really matters for the, what, $2 I put into Dogecoin, but still.

Vadoff 7y ago

They should make it illegal to gamble with your customers' balances and risk going insolvent.

brenden2 7y ago
Robinhood makes money by tailgating your orders and selling your trade history to hedge funds et al. If they make too many risky moves, it's possible that they could run out of money very quickly. That, combined with the panic from the 3 days of outages sounds like a very bad recipe to me. EDIT: changed frontrunning -> tailgating.
- mason55 7y ago
  > frontrunning your orders That's a pretty serious criminal allegation, do you have any more info? > and selling your trade history to hedge funds I have not heard about this either, do you have more info? The main way that I'm aware of that Robinhood makes money is payment for order flow. The idea is that HFT firms want make risk-free money by providing liquidity without taking a position (via the bid/ask spread). The problem in the larger market is that every once in awhile the price will move against the HFT firm because some other market participant knows something they don't, and so they get caught holding equities that they didn't want to hold. Instead, they pay Robinhood to send them order flow from retail customers who are unlikely to actually know anything and should have approximately even/random orders on either side of the bid/ask spread. Orders still have to be executed at the best possible price though, they can't send your order to Citadel and have Citadel charge you $0.02/share more than what you could get from someone else.
  - brenden2 7y ago
    It's not criminal in any way, it's actually pretty common for brokers to do this, particularly the free or low-cost ones. Call it market making if you want, but it's essentially the same mechanics.
    - judge2020 7y ago

colechristensen 7y ago

SIPC insurance protects you from any brokerage insolvency, up to $500k I believe. (not to mention a pile of laws and regulations to prevent risks of insolvency) I would suppose drawing on a credit line like that would have something to do with maintaining adequate funds in various accounts for settlement of funds transfers and stock transaction as well as the various margin products that brokerages have during a usage spike – without touching corporate accounts for raised funds and various other capital sources. I have no knowledge of the situation but it seems like they pulled in cash from a credit line created for this exact purpose to act as a buffer. Under the hood of all of these banks and brokerages are a series of settlement periods and bank accounts shared at different firms. You end up needing buffer cash because nothing is instant, you want to keep that to a minimum, and during a usage spike you have to add to the buffer to make sure nothing goes negative. Just the underlying mechanics of banking which has nothing at all to do with the firms financial health.