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I don't think this was Robinhood's choice. Robinhood doesn't actually execute any trades. They sell user's trade orders to Citadel, a trade executor. Citadel t

I don't think this was Robinhood's choice. Robinhood doesn't actually execute any trades. They sell user's trade orders to Citadel, a trade executor. Citadel then buys the shares on the market, and sells them to Robinhood for a slight markup. It's how Robinhood offers trades for $0 fees. You pay pennies more per share, but don't have to spend $5 per trade. Citadel, and other trade executors, are refusing to buy shares for retail traders. Coincidentally, Citadel also bailed out Melvin fund for their short position in GME. So, Citadel has an interest in not letting the price go up any further. And citadel controls trade execution for dozens of firms. This is definitely illegal. But Citadel is betting that the resulting SEC fines from this illegal manipulation will be less than the loss they would get if they didn't suppress the price.

whimsicalism 6y ago
I'm just not really sure I understand the narratives being thrown around right now, and I'd like to think I understand the economy somewhat Melvin Capital closed out their short position yesterday with a large loss - and Citadel helped cover that loss. As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price? Citadel is probably making bank off of this actually, like a lot of other sell-side firms.
- warkdarrior 6y ago
  If SEC decides at some point that this was pump-and-dump scheme (even crowdsourced), the Citadel may become liable for enabling that scheme, even if they do not run it themselves.
  - whimsicalism 6y ago
    I think it is much more likely that Robinhood is liable than the liquidity provider for Robinhood.
  - cameldrv 6y ago
    It seems unlikely to me that Citadel would be liable. They're just processing bulk transactions -- they have no direct contact with customers. You could just as well blame the NYSE.
    - ethbr0 6y ago
      They were just processing bulk transactions. If it's true they refused to process for certain securities for their downstream clients, then I believe "When?" and "Why?", specifically in relation to other actions, become legally relevant questions.
- tsdlts 6y ago
  They didn't tell you how much of the position they closed out on. They can say "they closed their position" even if they only closed out on 1% of it.
  - tartoran 6y ago
    How likely is it for them to close their position when the price hit so high? That would be a huge loss. Why not wait a bit, make a few desperate phone calls and leverage their power before that?
    - whimsicalism 6y ago
      Because of the expiration date of the short they sold and uncertainty over whether the price would continue to increase. If you have to buy by EOD Friday and the price starts skyrocketing Thursday, you might want to buy a little earlier even if it means eating a huge loss, because you don't know if that skyrocket will continue into the next day. e: Why is that downvoted?
      - desertrider12 6y ago
        Shorts aren't options, they don't have expiration dates. You can hold a short indefinitely just by paying interest on the borrowed share value when you entered the position. You can even keep the short from being forcibly closed during a squeeze by providing more collateral. Put options do expire, but the worst case for puts is that they expire worthless. Regular shorts can have unbounded losses. https://www.investopedia.com/ask/answers/05/shortmarginrequirements.asp https://www.investopedia.com/ask/answers/05/shortmarginrequi...
        whimsicalism 6y ago
        Sorry I misspoke. Melvin Capital's short position was in the form of puts, I think. Since they would expire worthless, better to sell them when it is skyrocketing than to wait and see it skyrocket further and lose all of your money.
- tartoran 6y ago
  > As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price? If this is accurate then your question makes sense. Why? But how do we know this is real though? They could play games as well and I'm sure they do. Stock trading is gambling.
  - whimsicalism 6y ago
    Citadel securities does not "play games", they aren't YOLO-ing on a GME short. They are happy to model the market so they can hedge better than their competitors and make money off of the bid-ask spread. Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.
    - cryptonym 6y ago
      You may work on some fancy model but at the end of the day you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors. Maybe, the problem was just transferred to someone else so they can remove it from their statements. And now that someone is trying to deal with this. Unless we have trustable source with all the details on how that position has been closed, I don't think it's safe to assume anything.
      - whimsicalism 6y ago
        > you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors. Sure, there is some risk in liquidity provisioning, but I think you are really not understanding what market makers do and conflating it with hedge funds.
    - TuringNYC 6y ago
      >> Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't. IANAL but I doubt this would be fraud -- they arent a public corporation making statements about themselves. They did have LPs, but i'm not sure what restrictions there are around speaking -- would anyone know?
- qwerty12345678 6y ago
  BS they closed their shorts....they shifted them to shell companies or to complicit 3rd parties so they could claim they unloaded the shorts publicly.
- djeiasbsbo 6y ago
  If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure. I am not trying to conspire, genuinely curious.
  - __al__ 6y ago
    with the stock price through the roof other funds (and retail investors) see it as a good opportunity to short.
  - whimsicalism 6y ago
    > If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure. Source? Also potentially new shorters getting in? I shorted AMC yesterday and have made quite a bit today.
- beachwood23 6y ago
  Yesterday, there was a 140% short position on Gamestop. Today, there is still a 122% short position on Gamestop. There are still many funds hedged against GME. Melvin might have had one of the larger positions, but there are many more funds with this position. Source: https://finviz.com/quote.ashx?t=GME https://finviz.com/quote.ashx?t=GME As you say, they would make money by running the orders, regardless if GME goes up or down. So - why would they stop? It is most likely that Citadel is still exposed to other funds holding short positions in GME.
  - whimsicalism 6y ago
    > So - why would they stop? There is literally no evidence that Citadel has stopped serving GME orders. That is entirely the conjecture of this thread and ignores the much more likelier option that it was Robinhood that limited the stocks. Why wouldn't you short GME after the price has risen so high? I'm sure there are plenty of hedge funds shorting now at a much higher price. Hell, I shorted AMC yesterday and have made quite a bit off of that already.
    - matthewrobertso 6y ago
      >Why wouldn't you short GME after the price has risen so high? Because the stock is already over 100% short and an army of retail investors is purchasing it
      - whimsicalism 6y ago
        So? If you had shorted GME yesterday, you would make a bunch now that the price has collapsed.
        matthewrobertso 6y ago
        What if the price goes up further? It's already rebounded 50% from the short ladder/blatant robinhood manipulation. Why put yourself on the hook for something during a black swan event?
- alasdair_ 6y ago
  >Melvin Capital closed out their short position yesterday with a large loss This is something many people are claiming is false. As far as I can find, Melvin have not issues any formal statement on the matter - this claim is purely based on a CNBC "source".
alexilliamson 6y ago
That's interesting because Ken Griffin started Citadel and has made huge investments in Melvin. Feels sketchy.
game_the0ry 6y ago
Wow. Just wow. As RH user myself, I did not have a clue I was actually doing business (indirectly) with Citadel. I'll be closing my RH account soon. For now, I'll be holding the line on GME.
- colinmhayes 6y ago
  Everyone who buys options is doing business with citadel. They're the originator of most options. HFT firms are inescapable because their very reason for existing is to provide the market with the best prices.
- whimsicalism 6y ago
  If you plan on continuing trading, it is going to be difficult to avoid doing business indirectly with Citadel, they are a major market maker.
- adrr 6y ago
  I am curious about holding GME. Is your plan to keep it long term? If not what are you plans to unwind your positions? Certain price point? Certain time frame?
  - jiofih 6y ago
    I think a majority of people riding this don’t care where the money goes - they just want to stick it to the man.
    - 542458 6y ago
      Which IMO is silly. Institutional investors hold 160% of GME’s float. For every institutional investor wanting it to tank there are others who want to see it rise. It’s not like the institutions all agree or anything - “The man” is on both sides of this.
      - adrr 6y ago
        They are collecting interest from hedgefunds for the short positions and collecting interest from brokerages for capital they provide for margin accounts. They win no matter what.
riffraff 6y ago
Who wins from a more limited market? It seems to me suspending trades locks people from selling as much as it locks them from buying, and short sellers should be happy to have a more liquid market,not less.
- yaur 6y ago
  According to the RH blog post they are allowing people to close their position, just not open or expand one.
JumpCrisscross 6y ago
> Citadel also bailed out Melvin fund for their short position in GME. So, Citadel has an interest in not letting the price go up any further. Citadel bailed out Melvin Capital. Not its position. Melvin doesn't have a short position anymore. Melvin made a stupid bet. Citadel bailed them out. Private sector bailouts aren't free: Citadel got its pound of flesh. Even if they bought the entire portfolio, that portfolio no longer includes GameStop shorts. If Citadel's asset management and market making arms are colluding, that is illegal. But it's the most complicated and stupid explanation of the bunch. Market makers stop quoting for all kinds of reasons. If I were still on my options market making desk, I'd be pulling the plug on this. My traders would yell at me. This is what you make money on in market making! But the risks of loss go up with volatility, and the costs of gamma getting away can be nasty. The chances that a fund the size of Citadel has any strong opinion on the direction of GameStop stock is vanishingly low. The chances that they stopped quoting in the name, as did almost every other market maker, and thereby broke Robinhood's system, which doesn't--to my knowledge--directly interface with exchanges to any significant degree, is high.
- AndrewBissell 6y ago
  I certainly get pulling the plug on options, but I don't understand how the volatility in $GME would lead a market maker to simply stop quoting the underlying stock altogether. If the price starts flying around you just widen your spread. If there's too much pressure on the buy side and you can't keep your position neutral, you just raise your offering price until you're not selling shares at too fast a rate anymore.
  - whimsicalism 6y ago
    You're making assumptions that it was the liquidity provider who pulled the plug and not the much more likely option that it was Robinhood pulling the plug for liability reasons.
    - AndrewBissell 6y ago
      No, I'm granting that as the parent's premise. And what liability reasons would Robinhood have to disallow buying an NYSE listed stock with 100% cash?
mgolawala 6y ago
Exactly this. They know there will be lawsuits and they know there might be SEC fines, but they are betting that those two will total up to be less than the billions it would cost them to cover a short position at $500-$600 per share. The question I have is, can this be prosecuted criminally and can those in charge be threatened with actual jail time from this?
- tornato7 6y ago
  But I don't think they are expecting the backlash that this had received. As a Robinhood user I am making it clear that this is not okay by withdrawing all of my funds and cancelling my Gold account, and I hope others will do the same.
infogulch 6y ago
Fix: fines should be 2x more than just taking the loss on the chin.
- corty 6y ago
  Problem is, the losses will never really be known. Shorts have an arbitrarily high loss potential, but nobody knows how high GME would have climbed without Robinhood manipulating it down.
  - sidlls 6y ago
    Then set the loss at the price where the manipulation started and add a multiplier.
skyde 6y ago
thanks for explaining your a hero
dehrmann 6y ago
Can most brokers route trades directly through the market or use another market maker if something like this happens? I assumed Citadel would actually be cleaning up market making GME with all the trading and volatility, but maybe the trades are too coordinated. What they're paying for is order flow from unsophisticated investors; they don't want to deal with hedge funds and the games they play. Maybe these trades are close enough to something a hedge fund would do, so the orders aren't worth it?
- whimsicalism 6y ago
  > directly through the market There is nothing but the market makers. > I assumed Citadel would actually be cleaning up market making GME with all the trading and volatility, but maybe the trades are too coordinated I suspect they are still making bank. The demand for liquidity has increased, so there is a higher premium on liquidity provision.
thanksgiving 6y ago
> This is definitely illegal. I think there must be laws that say the CEO and the board must get prison terms (preferably life, with no possibility of parole) for these crimes. No, I will not listen to hogwash like "you shouldn't be responsible for the actions of people you hire". BS. They report to you. Even if they did it on their own, why didn't you reverse it? If you are not responsible for the actions of your employees or contractors, don't hire them. Close down. See if I care.
- whimsicalism 6y ago
  Why are Americans so crazy for absurdly long penal punishments?
  - munk-a 6y ago
    I think it's generally because most Americans would be looking at ridiculously long prison sentences for common actions if they got caught (like possession) and because the US's general view is that there isn't anything in the world that can't be cured by throwing more prison time at it.
    - whimsicalism 6y ago
      Really? Where in America are you looking at a "ridiculous" long prison sentence in 2020 for possession? The war on drugs sucked, but it was still mostly a war against dealers.
      - lamontcg 6y ago
        Not if you were black and used crack. And pretty much any prison for posession and use is rediculous, if its a problem for the user it is a mental health issue and prison is the wrong treatment. And of course the limits on what determines if you're a dealer is set low enough, and carrier laws meant that many users were getting prosecuted like dealers. And what defines a "dealer" since someone doing a group buy for three friends is significantly less socially problematic than someone trafficking drugs across the border.
centimeter 6y ago
> You pay pennies more per share To clarify: you will never pay more than market price (i.e. you will never have to pay more than the best order sitting on the book). Citadel or whoever will only internalize your order if they're willing to offer you a better price than market price. Otherwise RH is obligated to match your order with the best price currently available. They are willing to do this because they would prefer not to leave orders sitting on the books, and there's a fee for taking orders off the books which they would prefer not to pay.
- cameldrv 6y ago
  This is theoretically true, but there have been numerous SEC enforcement actions based on this not happening.
sitzkrieg 6y ago
in futures, your refusing to execute an order for risk management is not illegal. as well as slamming you out of stupid positions. i can only hope equities execution houses are as coherent
Red_Leaves_Flyy 6y ago
The loss is provably infinite, the fine should be too.
michaelmior 6y ago
If that is the case, then it leads one to wonder why Robin Hood wouldn't come out and say so to avoid all the blowback they're getting. I suppose the obvious answer is that they don't want to burn bridges with Citadel.
foobarbazetc 6y ago
Citadel != Citadel Securities. Most clearing firms aren’t clearing GME or AMC anymore. It’s not just RH.
- Karunamon 6y ago
  Same owners at the end of the day.
matttb 6y ago
> I don't think this was Robinhood's choice. They sure made it sound like it was their choice. https://blog.robinhood.com/news/2021/1/28/keeping-customers-informed-through-market-volatility https://blog.robinhood.com/news/2021/1/28/keeping-customers-...
- tornato7 6y ago
  Exactly, while WeBull firmly pointed the finger at their market makers, Robinhood is treating it's customers like children and telling us they're banning trades for our own good while secretly collaborating with Wall Street in the background. They are a disgrace to the name "Robinhood."
  - kosh2 6y ago
    Tastytrade wrote very clearly that it was Apex Clearing that forced their hand.
- deleted 6y ago
  [deleted]
cc_stoic 6y ago
wow, this is a very apt explanation. the best financial advice I ever got was to never ignore conflicts of interest.
timack 6y ago
"Coincidentally"
deleted 6y ago
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ivalm 6y ago
> Citadel then buys the shares on the market, and sells them to Robinhood for a slight markup This would be front running and is fundamentally not how citadel or other MM function.
- huhnmonster 6y ago
  I guess I understand where you are coming from, but they way I understand it is that RH submits a bulk order for a stock and gets a quote from the MM, which the MM thinks is appropriate. The MM then adjusts its own portfolio accordingly, buying/selling the underlying stock at its own pace. So, more or less as described, but the order is a little different, right?
  - ivalm 6y ago
    Market makers fulfill a bunch of orders, they then have until end of day to get into a delta neutral position. They prefer to trade against retail traders because retail traders are typically uncorrelated, which means that vast majority of trades cancel out (but MM still collects the bid-ask spread on the trades!). When you make markets for counter-parties that include big institution there is always a risk that the "small" trades you're fulfilling will be very correlated (because a big institution is actually breaking-up and feeding you a big trade). This is called adverse selection and will force MM to start buying to get to a neutral position (which means that the bid-ask spread they are collecting will have to be paid to some other seller). What Citadel and others are doing is they are saying to RH "your order flow is uncorrelated and we'd like to make markets for it, we will charge your users slightly lower bid-ask spread (price improvement for user) and we will also give you a slice of the bid-ask spread we do collect, in return the uncorrelated nature of the orders will ensure that we won't have to do much trades in order to maintain a neutral position." This proposition is actually good for 1. RH users (they get price improvement relative to NBBO) 2. RH (they get to make money and get a user base) 3. Participating market makers (they get much steadier cash flow from MM activity). It is bad for 1. Big institutions, they get to pay larger spread than they would if the market was more diluted by retails 2. Non-participating MM (they increase the bid-ask spread to make sure it's still worth their time but there is more volatility and it's a competitive market so mis-pricing the spread is a real problem). Also, current GME shenanigans are net good for MM since MM is a business that makes money on volume, not direction.
heimatau 6y ago
Rumor mill says that the White House and Sequoia called RH to force their hand. Honestly, I wouldn't expect anything less. I say this because 2% drawdown of the stock market didn't happen for zero reason. It happened because these fools are leveraged up to their ass (metaphor) and the bet cost them severely. And it's cheaper to take the bad PR while salvaging your fuck up. These people act in a different set of rules and that's not okay. IMHO, I'm concerned about this because this is a 1st amendment problem. Let grown adults gamble. Let them be responsible for their dumb actions (hedge and retail alike). If someone is 'too big to fail' then they are 'too big to exist'.
- redisman 6y ago
  The White House? This”rumor” doesn’t make any sense
  - Rapzid 6y ago
    The Man is pulling the strings and everybody knows The Man lives in the White House. It makes a perfect kind of sense. Nonsense.
- aneemzic 6y ago
  > I'm concerned about this because this is a 1st amendment problem. Let grown adults gamble. Gambling isn't even legal in most states. Good luck arguing that.
  - heimatau 6y ago
    > Gambling isn't even legal in most states. Good luck arguing that. What States are you not allowed to short or long? Using your logic, this is cognitive dissonance. How free people spend their money is an act of speech, PACs and SuperPACs are emboldened by this current legal fact.
    - aneemzic 6y ago
      No, you specifically said it's a first amendment problem and to let adults gamble. If it was a first amendment problem, gambling wouldn't be illegal in most states.
deleted 6y ago
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throwawaylolx 6y ago
>Citadel, and other trade executors, are refusing to buy shares for retail traders. Any evidence on this? RH said the opposite: >To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to. We’re beginning to open up trading for some of these securities in a responsible manner.
onlyrealcuzzo 6y ago
> This is definitely illegal. But Citadel is betting that the resulting SEC fines from this illegal manipulation will be less than the loss they would get if they didn't suppress the price. It's not really a bet when they're 50% certain they can get away with no fine, 99% certain the SEC fine will be < 10% of the profit, and 100% certain the fine won't be > 100% of the profit.
moralestapia 6y ago
"... the resulting SEC fines from this illegal manipulation ..." Plus time in prison.
conformist 6y ago
Citadel Securities is not Citadel Investments. This is important, because they operate on different sides of this: Citadel Securities is the market maker that is interested in Robinhood's flow. Citadel Investments is the hedge fund that bailed out Melvin. Now, whether it's good that they're connected, and up to what extent they should be allowed to is an important question. Even if there had been some kind of illegal collusion, it doesn't seem likely that stopping trading would have helped Melvin to cover their short position, which they ended up doing. There is probably no conspiracy here.
stjohnswarts 6y ago
I think it is probably illegal but SEC fines are so light they are just considered part of the price of doing businesses. If the SEC did something more reasonable like charge 5% o revenue for a year then these companies would sit up and take notice.
ofou 6y ago
The weird thing is that Citadel Securities and Citadel are different entities. Citadel Fund went to the rescue of Melvin Capital and Citadel Securities stopped the buying trades. Suspicious eh?

whimsicalism 6y ago

I'm just not really sure I understand the narratives being thrown around right now, and I'd like to think I understand the economy somewhat Melvin Capital closed out their short position yesterday with a large loss - and Citadel helped cover that loss. As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price? Citadel is probably making bank off of this actually, like a lot of other sell-side firms.

warkdarrior 6y ago
If SEC decides at some point that this was pump-and-dump scheme (even crowdsourced), the Citadel may become liable for enabling that scheme, even if they do not run it themselves.
- whimsicalism 6y ago
  I think it is much more likely that Robinhood is liable than the liquidity provider for Robinhood.
- cameldrv 6y ago
  It seems unlikely to me that Citadel would be liable. They're just processing bulk transactions -- they have no direct contact with customers. You could just as well blame the NYSE.
  - ethbr0 6y ago
    They were just processing bulk transactions. If it's true they refused to process for certain securities for their downstream clients, then I believe "When?" and "Why?", specifically in relation to other actions, become legally relevant questions.
tsdlts 6y ago
They didn't tell you how much of the position they closed out on. They can say "they closed their position" even if they only closed out on 1% of it.
- tartoran 6y ago
  How likely is it for them to close their position when the price hit so high? That would be a huge loss. Why not wait a bit, make a few desperate phone calls and leverage their power before that?
  - whimsicalism 6y ago
    Because of the expiration date of the short they sold and uncertainty over whether the price would continue to increase. If you have to buy by EOD Friday and the price starts skyrocketing Thursday, you might want to buy a little earlier even if it means eating a huge loss, because you don't know if that skyrocket will continue into the next day. e: Why is that downvoted?
    - desertrider12 6y ago
      Shorts aren't options, they don't have expiration dates. You can hold a short indefinitely just by paying interest on the borrowed share value when you entered the position. You can even keep the short from being forcibly closed during a squeeze by providing more collateral. Put options do expire, but the worst case for puts is that they expire worthless. Regular shorts can have unbounded losses. https://www.investopedia.com/ask/answers/05/shortmarginrequirements.asp https://www.investopedia.com/ask/answers/05/shortmarginrequi...
      - whimsicalism 6y ago
        Sorry I misspoke. Melvin Capital's short position was in the form of puts, I think. Since they would expire worthless, better to sell them when it is skyrocketing than to wait and see it skyrocket further and lose all of your money.
tartoran 6y ago
> As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price? If this is accurate then your question makes sense. Why? But how do we know this is real though? They could play games as well and I'm sure they do. Stock trading is gambling.
- whimsicalism 6y ago
  Citadel securities does not "play games", they aren't YOLO-ing on a GME short. They are happy to model the market so they can hedge better than their competitors and make money off of the bid-ask spread. Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.
  - cryptonym 6y ago
    You may work on some fancy model but at the end of the day you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors. Maybe, the problem was just transferred to someone else so they can remove it from their statements. And now that someone is trying to deal with this. Unless we have trustable source with all the details on how that position has been closed, I don't think it's safe to assume anything.
    - whimsicalism 6y ago
      > you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors. Sure, there is some risk in liquidity provisioning, but I think you are really not understanding what market makers do and conflating it with hedge funds.
  - TuringNYC 6y ago
    >> Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't. IANAL but I doubt this would be fraud -- they arent a public corporation making statements about themselves. They did have LPs, but i'm not sure what restrictions there are around speaking -- would anyone know?
qwerty12345678 6y ago
BS they closed their shorts....they shifted them to shell companies or to complicit 3rd parties so they could claim they unloaded the shorts publicly.
djeiasbsbo 6y ago
If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure. I am not trying to conspire, genuinely curious.
- __al__ 6y ago
  with the stock price through the roof other funds (and retail investors) see it as a good opportunity to short.
- whimsicalism 6y ago
  > If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure. Source? Also potentially new shorters getting in? I shorted AMC yesterday and have made quite a bit today.
beachwood23 6y ago
Yesterday, there was a 140% short position on Gamestop. Today, there is still a 122% short position on Gamestop. There are still many funds hedged against GME. Melvin might have had one of the larger positions, but there are many more funds with this position. Source: https://finviz.com/quote.ashx?t=GME https://finviz.com/quote.ashx?t=GME As you say, they would make money by running the orders, regardless if GME goes up or down. So - why would they stop? It is most likely that Citadel is still exposed to other funds holding short positions in GME.
- whimsicalism 6y ago
  > So - why would they stop? There is literally no evidence that Citadel has stopped serving GME orders. That is entirely the conjecture of this thread and ignores the much more likelier option that it was Robinhood that limited the stocks. Why wouldn't you short GME after the price has risen so high? I'm sure there are plenty of hedge funds shorting now at a much higher price. Hell, I shorted AMC yesterday and have made quite a bit off of that already.
  - matthewrobertso 6y ago
    >Why wouldn't you short GME after the price has risen so high? Because the stock is already over 100% short and an army of retail investors is purchasing it
    - whimsicalism 6y ago
      So? If you had shorted GME yesterday, you would make a bunch now that the price has collapsed.
      - matthewrobertso 6y ago
        What if the price goes up further? It's already rebounded 50% from the short ladder/blatant robinhood manipulation. Why put yourself on the hook for something during a black swan event?
alasdair_ 6y ago
>Melvin Capital closed out their short position yesterday with a large loss This is something many people are claiming is false. As far as I can find, Melvin have not issues any formal statement on the matter - this claim is purely based on a CNBC "source".

alexilliamson 6y ago

That's interesting because Ken Griffin started Citadel and has made huge investments in Melvin. Feels sketchy.

game_the0ry 6y ago

Wow. Just wow. As RH user myself, I did not have a clue I was actually doing business (indirectly) with Citadel. I'll be closing my RH account soon. For now, I'll be holding the line on GME.

colinmhayes 6y ago
Everyone who buys options is doing business with citadel. They're the originator of most options. HFT firms are inescapable because their very reason for existing is to provide the market with the best prices.
whimsicalism 6y ago
If you plan on continuing trading, it is going to be difficult to avoid doing business indirectly with Citadel, they are a major market maker.
adrr 6y ago
I am curious about holding GME. Is your plan to keep it long term? If not what are you plans to unwind your positions? Certain price point? Certain time frame?
- jiofih 6y ago
  I think a majority of people riding this don’t care where the money goes - they just want to stick it to the man.
  - 542458 6y ago
    Which IMO is silly. Institutional investors hold 160% of GME’s float. For every institutional investor wanting it to tank there are others who want to see it rise. It’s not like the institutions all agree or anything - “The man” is on both sides of this.
    - adrr 6y ago
      They are collecting interest from hedgefunds for the short positions and collecting interest from brokerages for capital they provide for margin accounts. They win no matter what.

riffraff 6y ago

Who wins from a more limited market? It seems to me suspending trades locks people from selling as much as it locks them from buying, and short sellers should be happy to have a more liquid market,not less.

yaur 6y ago
According to the RH blog post they are allowing people to close their position, just not open or expand one.

JumpCrisscross 6y ago

> Citadel also bailed out Melvin fund for their short position in GME. So, Citadel has an interest in not letting the price go up any further. Citadel bailed out Melvin Capital. Not its position. Melvin doesn't have a short position anymore. Melvin made a stupid bet. Citadel bailed them out. Private sector bailouts aren't free: Citadel got its pound of flesh. Even if they bought the entire portfolio, that portfolio no longer includes GameStop shorts. If Citadel's asset management and market making arms are colluding, that is illegal. But it's the most complicated and stupid explanation of the bunch. Market makers stop quoting for all kinds of reasons. If I were still on my options market making desk, I'd be pulling the plug on this. My traders would yell at me. This is what you make money on in market making! But the risks of loss go up with volatility, and the costs of gamma getting away can be nasty. The chances that a fund the size of Citadel has any strong opinion on the direction of GameStop stock is vanishingly low. The chances that they stopped quoting in the name, as did almost every other market maker, and thereby broke Robinhood's system, which doesn't--to my knowledge--directly interface with exchanges to any significant degree, is high.

AndrewBissell 6y ago
I certainly get pulling the plug on options, but I don't understand how the volatility in $GME would lead a market maker to simply stop quoting the underlying stock altogether. If the price starts flying around you just widen your spread. If there's too much pressure on the buy side and you can't keep your position neutral, you just raise your offering price until you're not selling shares at too fast a rate anymore.
- whimsicalism 6y ago
  You're making assumptions that it was the liquidity provider who pulled the plug and not the much more likely option that it was Robinhood pulling the plug for liability reasons.
  - AndrewBissell 6y ago
    No, I'm granting that as the parent's premise. And what liability reasons would Robinhood have to disallow buying an NYSE listed stock with 100% cash?

mgolawala 6y ago

Exactly this. They know there will be lawsuits and they know there might be SEC fines, but they are betting that those two will total up to be less than the billions it would cost them to cover a short position at $500-$600 per share. The question I have is, can this be prosecuted criminally and can those in charge be threatened with actual jail time from this?

tornato7 6y ago
But I don't think they are expecting the backlash that this had received. As a Robinhood user I am making it clear that this is not okay by withdrawing all of my funds and cancelling my Gold account, and I hope others will do the same.

infogulch 6y ago

Fix: fines should be 2x more than just taking the loss on the chin.

corty 6y ago
Problem is, the losses will never really be known. Shorts have an arbitrarily high loss potential, but nobody knows how high GME would have climbed without Robinhood manipulating it down.
- sidlls 6y ago
  Then set the loss at the price where the manipulation started and add a multiplier.

skyde 6y ago

thanks for explaining your a hero

dehrmann 6y ago

Can most brokers route trades directly through the market or use another market maker if something like this happens? I assumed Citadel would actually be cleaning up market making GME with all the trading and volatility, but maybe the trades are too coordinated. What they're paying for is order flow from unsophisticated investors; they don't want to deal with hedge funds and the games they play. Maybe these trades are close enough to something a hedge fund would do, so the orders aren't worth it?

whimsicalism 6y ago
> directly through the market There is nothing but the market makers. > I assumed Citadel would actually be cleaning up market making GME with all the trading and volatility, but maybe the trades are too coordinated I suspect they are still making bank. The demand for liquidity has increased, so there is a higher premium on liquidity provision.

thanksgiving 6y ago

> This is definitely illegal. I think there must be laws that say the CEO and the board must get prison terms (preferably life, with no possibility of parole) for these crimes. No, I will not listen to hogwash like "you shouldn't be responsible for the actions of people you hire". BS. They report to you. Even if they did it on their own, why didn't you reverse it? If you are not responsible for the actions of your employees or contractors, don't hire them. Close down. See if I care.

whimsicalism 6y ago
Why are Americans so crazy for absurdly long penal punishments?
- munk-a 6y ago
  I think it's generally because most Americans would be looking at ridiculously long prison sentences for common actions if they got caught (like possession) and because the US's general view is that there isn't anything in the world that can't be cured by throwing more prison time at it.
  - whimsicalism 6y ago
    Really? Where in America are you looking at a "ridiculous" long prison sentence in 2020 for possession? The war on drugs sucked, but it was still mostly a war against dealers.
    - lamontcg 6y ago
      Not if you were black and used crack. And pretty much any prison for posession and use is rediculous, if its a problem for the user it is a mental health issue and prison is the wrong treatment. And of course the limits on what determines if you're a dealer is set low enough, and carrier laws meant that many users were getting prosecuted like dealers. And what defines a "dealer" since someone doing a group buy for three friends is significantly less socially problematic than someone trafficking drugs across the border.

centimeter 6y ago

> You pay pennies more per share To clarify: you will never pay more than market price (i.e. you will never have to pay more than the best order sitting on the book). Citadel or whoever will only internalize your order if they're willing to offer you a better price than market price. Otherwise RH is obligated to match your order with the best price currently available. They are willing to do this because they would prefer not to leave orders sitting on the books, and there's a fee for taking orders off the books which they would prefer not to pay.

cameldrv 6y ago
This is theoretically true, but there have been numerous SEC enforcement actions based on this not happening.

sitzkrieg 6y ago

in futures, your refusing to execute an order for risk management is not illegal. as well as slamming you out of stupid positions. i can only hope equities execution houses are as coherent

Red_Leaves_Flyy 6y ago

The loss is provably infinite, the fine should be too.

michaelmior 6y ago

If that is the case, then it leads one to wonder why Robin Hood wouldn't come out and say so to avoid all the blowback they're getting. I suppose the obvious answer is that they don't want to burn bridges with Citadel.

foobarbazetc 6y ago

Citadel != Citadel Securities. Most clearing firms aren’t clearing GME or AMC anymore. It’s not just RH.

Karunamon 6y ago
Same owners at the end of the day.

matttb 6y ago

> I don't think this was Robinhood's choice. They sure made it sound like it was their choice. https://blog.robinhood.com/news/2021/1/28/keeping-customers-informed-through-market-volatility https://blog.robinhood.com/news/2021/1/28/keeping-customers-...

tornato7 6y ago
Exactly, while WeBull firmly pointed the finger at their market makers, Robinhood is treating it's customers like children and telling us they're banning trades for our own good while secretly collaborating with Wall Street in the background. They are a disgrace to the name "Robinhood."
- kosh2 6y ago
  Tastytrade wrote very clearly that it was Apex Clearing that forced their hand.
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cc_stoic 6y ago

wow, this is a very apt explanation. the best financial advice I ever got was to never ignore conflicts of interest.

timack 6y ago

"Coincidentally"

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ivalm 6y ago

> Citadel then buys the shares on the market, and sells them to Robinhood for a slight markup This would be front running and is fundamentally not how citadel or other MM function.

huhnmonster 6y ago
I guess I understand where you are coming from, but they way I understand it is that RH submits a bulk order for a stock and gets a quote from the MM, which the MM thinks is appropriate. The MM then adjusts its own portfolio accordingly, buying/selling the underlying stock at its own pace. So, more or less as described, but the order is a little different, right?
- ivalm 6y ago
  Market makers fulfill a bunch of orders, they then have until end of day to get into a delta neutral position. They prefer to trade against retail traders because retail traders are typically uncorrelated, which means that vast majority of trades cancel out (but MM still collects the bid-ask spread on the trades!). When you make markets for counter-parties that include big institution there is always a risk that the "small" trades you're fulfilling will be very correlated (because a big institution is actually breaking-up and feeding you a big trade). This is called adverse selection and will force MM to start buying to get to a neutral position (which means that the bid-ask spread they are collecting will have to be paid to some other seller). What Citadel and others are doing is they are saying to RH "your order flow is uncorrelated and we'd like to make markets for it, we will charge your users slightly lower bid-ask spread (price improvement for user) and we will also give you a slice of the bid-ask spread we do collect, in return the uncorrelated nature of the orders will ensure that we won't have to do much trades in order to maintain a neutral position." This proposition is actually good for 1. RH users (they get price improvement relative to NBBO) 2. RH (they get to make money and get a user base) 3. Participating market makers (they get much steadier cash flow from MM activity). It is bad for 1. Big institutions, they get to pay larger spread than they would if the market was more diluted by retails 2. Non-participating MM (they increase the bid-ask spread to make sure it's still worth their time but there is more volatility and it's a competitive market so mis-pricing the spread is a real problem). Also, current GME shenanigans are net good for MM since MM is a business that makes money on volume, not direction.

heimatau 6y ago

Rumor mill says that the White House and Sequoia called RH to force their hand. Honestly, I wouldn't expect anything less. I say this because 2% drawdown of the stock market didn't happen for zero reason. It happened because these fools are leveraged up to their ass (metaphor) and the bet cost them severely. And it's cheaper to take the bad PR while salvaging your fuck up. These people act in a different set of rules and that's not okay. IMHO, I'm concerned about this because this is a 1st amendment problem. Let grown adults gamble. Let them be responsible for their dumb actions (hedge and retail alike). If someone is 'too big to fail' then they are 'too big to exist'.

redisman 6y ago
The White House? This”rumor” doesn’t make any sense
- Rapzid 6y ago
  The Man is pulling the strings and everybody knows The Man lives in the White House. It makes a perfect kind of sense. Nonsense.
aneemzic 6y ago
> I'm concerned about this because this is a 1st amendment problem. Let grown adults gamble. Gambling isn't even legal in most states. Good luck arguing that.
- heimatau 6y ago
  > Gambling isn't even legal in most states. Good luck arguing that. What States are you not allowed to short or long? Using your logic, this is cognitive dissonance. How free people spend their money is an act of speech, PACs and SuperPACs are emboldened by this current legal fact.
  - aneemzic 6y ago
    No, you specifically said it's a first amendment problem and to let adults gamble. If it was a first amendment problem, gambling wouldn't be illegal in most states.

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throwawaylolx 6y ago

>Citadel, and other trade executors, are refusing to buy shares for retail traders. Any evidence on this? RH said the opposite: >To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to. We’re beginning to open up trading for some of these securities in a responsible manner.

onlyrealcuzzo 6y ago

> This is definitely illegal. But Citadel is betting that the resulting SEC fines from this illegal manipulation will be less than the loss they would get if they didn't suppress the price. It's not really a bet when they're 50% certain they can get away with no fine, 99% certain the SEC fine will be < 10% of the profit, and 100% certain the fine won't be > 100% of the profit.

moralestapia 6y ago

"... the resulting SEC fines from this illegal manipulation ..." Plus time in prison.

conformist 6y ago

Citadel Securities is not Citadel Investments. This is important, because they operate on different sides of this: Citadel Securities is the market maker that is interested in Robinhood's flow. Citadel Investments is the hedge fund that bailed out Melvin. Now, whether it's good that they're connected, and up to what extent they should be allowed to is an important question. Even if there had been some kind of illegal collusion, it doesn't seem likely that stopping trading would have helped Melvin to cover their short position, which they ended up doing. There is probably no conspiracy here.

stjohnswarts 6y ago

I think it is probably illegal but SEC fines are so light they are just considered part of the price of doing businesses. If the SEC did something more reasonable like charge 5% o revenue for a year then these companies would sit up and take notice.

ofou 6y ago

The weird thing is that Citadel Securities and Citadel are different entities. Citadel Fund went to the rescue of Melvin Capital and Citadel Securities stopped the buying trades. Suspicious eh?