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I have barely any knowledge when it comes to the stock market. But what Robinhood did here at least sounds highly illegal already to me. Question: Is there any

I have barely any knowledge when it comes to the stock market. But what Robinhood did here at least sounds highly illegal already to me. Question: Is there any way Robinhood could phrase this decision that makes it OK to selectively prevent their users from buying certain stocks during an arbitrary time period?

cmdli 6y ago
Not trying to defend Robinhood here, but it would probably go like this: Robinhood is a private service and potentially has liability from what it enables users to do. They are under no obligation to provide trades on specific stocks, and if users want to trade that specific stock then they are free to use a different service. Users can sell/trade their assets out of the Robinhood service if they are unhappy with the current state of affairs. Of course, the users are free to file any lawsuits they wish. Saying "the game is rigged and its unfair" isn't exactly a legal argument, though.
- TameAntelope 6y ago
  I'm curious what relevance Section 230 has here. That is, would Robinhood (and Reddit) be concerned that allowing users to execute a market manipulation attempt expose the platform to legal trouble, or are they protected by Section 230 (up to the point where the SEC asks them to do something specifically)? This feels like another example of, "Their house, their rules." You don't have to use Robinhood to trade on the NYSE, so the question becomes, "Couldn't these users execute these trades elsewhere?"
  - tourist_ 6y ago
    I am not a U.S. person, but isn't/shouldn't there be a set of rules for the provider of a brokerage account. Sure, its their house, their rules, but how can they change the rules overnight? If what Robinhood did isn't illegal, then I suppose I had the wrong impression about the strength of financial regulations in the U.S. (If this happened in my home country, I would never participate in the markets again.)
    - TameAntelope 6y ago
      I think what we're finding out now is that this happened as a result of the strength of financial regulations/safety systems in place in the US markets. Volatility increases risk, and higher risk requires higher levels of safety to operate properly, and Robinhood couldn't provide the higher level of safety, so they were given no choice by the people who actually execute their trades. In the coming days, more information will add context that, I expect, will make the populist outrage look foolish/uninformed. In many ways, we're already there.
  - SnowingXIV 6y ago
    There is a timing issue at play too, even if that's true. Say you wanted to migrate off elsewhere - it could take days for funds to settle between selling -> buying on another brokerage. By that time they possibly could have covered the shorts.
  - aeternum 6y ago
    >Couldn't these users execute these trades elsewhere Not really, it takes days to withdraw money.
  - devindotcom 6y ago
    Reddit is almost certainly covered by 230 in this instance. RH is a tougher question, but I'd argue they are probably fine. If either has liability (particularly RH) it will be under other laws or rules.
manwe150 6y ago
Presumably? They are not a socialistic public good, they are a capitalistic company whose goal is to make themselves profit. It is not their job to make you money. Capitalism works because trade is not a zero sum game, so it is normally possible that everyone profits. Here we seem to have hit the normal edge case where one company may refuse to participate if they would not profit (including the loss to their reputation and the future earnings potential it buys, etc). Unless someone does profit directly from the information, as I think that sounds dangerously close to being insider trading. Anyways, the situation sounds a lot like Bitcoin to me, from what I hear about the delays and costs of using the exchanges on that platform. And that has not yet been made illegal.
KMag 6y ago
Robinhood may be between a rock and a hard place if the SCC finds that the discussions on Reddit constituted a conspiracy to manipulate the market, primarily using Robinhood, that Robinhood must have been aware of. Robinhood probably is also trying to protect most of its users from being the last ones holding the hot potato. Robinhood has very little incentive to conspire with hedge funds, but every reason to protect their users form themselves, if they think many of their users are taking on risks that will likely hinder their ability and/or willingness to use Robinhood in the future. This should not be construed as investment advice for or against GME at its current price.
- nawgz 6y ago
  > Robinhood probably is also trying to protect most of its users from being the last ones holding the hot potato This narrative is false. Robinhood users are executing a short squeeze on Melvin Capital, who have shorted the stock which gives them an obligation to buy the stock when their short expires at whatever price it exists at. They stock is also "over-shorted" (sorry I'm not wise in this domain), so they are literally obligated to buy at whatever price the stock is at. The hot potato holders are those who have to cover their short position. Robinhood traders are not these users; no casual retail trader short stocks. tl;dr Robinhood and others are participating in collusion and market manipulation to prevent Robinhood users from finishing a short squeeze which would extract billions from Melvin Capital, who have already received a multi-billion bailout on their ridiculous short position
  - KMag 6y ago
    I know what a short squeeze is. The problem is that you may have tons of people planning to exit right around the same time, and there may not be enough trading volume for them to get out at prices they're happy with. The fear is that many Robinhood users may not realize that exiting their position may be much much harder than they expect. If the entire value proposition is that Melvin Capital is being squeezed, what happens to the price of GME the moment after Melvin Capital exits their position? This should not be construed as investment advice in any way.
  - deleted 6y ago

cmdli 6y ago

Not trying to defend Robinhood here, but it would probably go like this: Robinhood is a private service and potentially has liability from what it enables users to do. They are under no obligation to provide trades on specific stocks, and if users want to trade that specific stock then they are free to use a different service. Users can sell/trade their assets out of the Robinhood service if they are unhappy with the current state of affairs. Of course, the users are free to file any lawsuits they wish. Saying "the game is rigged and its unfair" isn't exactly a legal argument, though.

TameAntelope 6y ago
I'm curious what relevance Section 230 has here. That is, would Robinhood (and Reddit) be concerned that allowing users to execute a market manipulation attempt expose the platform to legal trouble, or are they protected by Section 230 (up to the point where the SEC asks them to do something specifically)? This feels like another example of, "Their house, their rules." You don't have to use Robinhood to trade on the NYSE, so the question becomes, "Couldn't these users execute these trades elsewhere?"
- tourist_ 6y ago
  I am not a U.S. person, but isn't/shouldn't there be a set of rules for the provider of a brokerage account. Sure, its their house, their rules, but how can they change the rules overnight? If what Robinhood did isn't illegal, then I suppose I had the wrong impression about the strength of financial regulations in the U.S. (If this happened in my home country, I would never participate in the markets again.)
  - TameAntelope 6y ago
    I think what we're finding out now is that this happened as a result of the strength of financial regulations/safety systems in place in the US markets. Volatility increases risk, and higher risk requires higher levels of safety to operate properly, and Robinhood couldn't provide the higher level of safety, so they were given no choice by the people who actually execute their trades. In the coming days, more information will add context that, I expect, will make the populist outrage look foolish/uninformed. In many ways, we're already there.
- SnowingXIV 6y ago
  There is a timing issue at play too, even if that's true. Say you wanted to migrate off elsewhere - it could take days for funds to settle between selling -> buying on another brokerage. By that time they possibly could have covered the shorts.
- aeternum 6y ago
  >Couldn't these users execute these trades elsewhere Not really, it takes days to withdraw money.
- devindotcom 6y ago
  Reddit is almost certainly covered by 230 in this instance. RH is a tougher question, but I'd argue they are probably fine. If either has liability (particularly RH) it will be under other laws or rules.

manwe150 6y ago

Presumably? They are not a socialistic public good, they are a capitalistic company whose goal is to make themselves profit. It is not their job to make you money. Capitalism works because trade is not a zero sum game, so it is normally possible that everyone profits. Here we seem to have hit the normal edge case where one company may refuse to participate if they would not profit (including the loss to their reputation and the future earnings potential it buys, etc). Unless someone does profit directly from the information, as I think that sounds dangerously close to being insider trading. Anyways, the situation sounds a lot like Bitcoin to me, from what I hear about the delays and costs of using the exchanges on that platform. And that has not yet been made illegal.

KMag 6y ago

Robinhood may be between a rock and a hard place if the SCC finds that the discussions on Reddit constituted a conspiracy to manipulate the market, primarily using Robinhood, that Robinhood must have been aware of. Robinhood probably is also trying to protect most of its users from being the last ones holding the hot potato. Robinhood has very little incentive to conspire with hedge funds, but every reason to protect their users form themselves, if they think many of their users are taking on risks that will likely hinder their ability and/or willingness to use Robinhood in the future. This should not be construed as investment advice for or against GME at its current price.

nawgz 6y ago
> Robinhood probably is also trying to protect most of its users from being the last ones holding the hot potato This narrative is false. Robinhood users are executing a short squeeze on Melvin Capital, who have shorted the stock which gives them an obligation to buy the stock when their short expires at whatever price it exists at. They stock is also "over-shorted" (sorry I'm not wise in this domain), so they are literally obligated to buy at whatever price the stock is at. The hot potato holders are those who have to cover their short position. Robinhood traders are not these users; no casual retail trader short stocks. tl;dr Robinhood and others are participating in collusion and market manipulation to prevent Robinhood users from finishing a short squeeze which would extract billions from Melvin Capital, who have already received a multi-billion bailout on their ridiculous short position
- KMag 6y ago
  I know what a short squeeze is. The problem is that you may have tons of people planning to exit right around the same time, and there may not be enough trading volume for them to get out at prices they're happy with. The fear is that many Robinhood users may not realize that exiting their position may be much much harder than they expect. If the entire value proposition is that Melvin Capital is being squeezed, what happens to the price of GME the moment after Melvin Capital exits their position? This should not be construed as investment advice in any way.
- deleted 6y ago