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When retail in traders en masse decide that a trading platform is impinging upon their rights, the SEC should be obligated to open an investigation. Isn't this

by anm89 6y ago

When retail in traders en masse decide that a trading platform is impinging upon their rights, the SEC should be obligated to open an investigation. Isn't this pretty much a major component of their intended purpose?

alangibson 6y ago
The SEC has led the charge of government agencies away from anything that could reasonably be called regulation. Take note of how often the term 'oversight' is used vs 'regulation' when these guys are talking.
- ethbr0 6y ago
  Last I checked, the SEC doesn't pay very well compared to financial law / trading...
  - alangibson 6y ago
    There are lots of skilled but civic minded people in all the three letter agencies. The problem isn't people, it's ideology. Namely market fetishism and the assumption that if you're rich you just know better.
- anm89 6y ago
  Yeah, I assume in reality, this is essentially the exact opposite what is happening. I would imagine the SEC is involved behind the scenes in coordinating these shutdowns. That feels like a huge violation of their stated intent though.
- totalZero 6y ago
  > how often the term 'oversight' is used vs 'regulation' when these guys are talking. Is that how we're determining efficacy now...? Semantics? I take it that you like FINRA because of the R in the name.
  - alangibson 6y ago
    What? My point is that they see themselves as mall cops observing and reporting, not actively regulating behavior. That makes a pretty big difference in efficacy.
    - totalZero 6y ago
      What you said was that they often use the word "observe" rather than "regulate," and that this is somehow reflective of the way they do their jobs. That's a purely semantic viewpoint and a ridiculous way to judge the efficacy of any regulator. In actual fact, they use the term "enforcement action." Here's their report from 2020. See for yourself: https://www.sec.gov/files/enforcement-annual-report-2020.pdf https://www.sec.gov/files/enforcement-annual-report-2020.pdf
dmurray 6y ago
I think we can be certain the SEC will open an investigation. They don't generally work in real time though.
ritchiea 6y ago
I've been reading WSB since yesterday and while I understand the outrage about blocking trading. They started blocking trading with $GME trading in the $400's, and a slew of redditors on WSB, Discord & Telegram pushing penny stocks. It started out a crusade against the hedge fund shorting $GME and quickly turned into rallying dumb money to pump and dump penny stocks. Looking at the direction things were going it seems like Robinhood acted responsibly in cutting off the buys of AMC, BB, NOK, etc. They're all stocks that have been propped up artificially in the last 48 hours based on the hype and attention generated by the Gamestop story. No one serious thinks Gamestop stock is worth $400+. Robinhood cut off buying at the point when unsophisticated investors were caught up in a stampede to "stick it to the man." Seems like they did the right thing.
- nightowl_games 6y ago
  > Robinhood acted responsibly No. This is against the Free Market hypothesis. We are supposed to let the Dumb Money get into the market, fail out and learn their lesson.
  - shrimpx 6y ago
    Wall Street is/will be having a ball with the new administration desperate to keep the market "stable". Stable == deliberately and slowly bled by hedge funds.
  - tome 6y ago
    What's the Free Market hypothesis?
- adoxyz 6y ago
  Should Robinhood be an arbiter of what is a reasonable trade and what people can spend their money on? Because if so, they have a lot of restricting to do to keep people safe...
- snarf21 6y ago
  What about the people that are trying to double down to protect their long position? What about the money they will lose? Either the market is efficient or it isn't.
racl101 6y ago
> Isn't this pretty much a major component of their intended purpose? Reminds me of the scene in the The Big Short where the hot chick in the pool who currently works for the SEC (at the time) is in town in Vegas for a conference hoping to run into some Wall Street banker dudes so she can schmooze and float her resume to them. And it's not a conflict of interest.
shrimpx 6y ago
I have a bit of knowledge from friends who work in fintech, and the sentiment among fintech companies seems to be that SEC doesn't matter. The fine is small and comes way too late. You can simply account for an approximate future fine and move forward with your shady business.
- silexia 6y ago
  This will probably be my least popular post ever, but the explanation needs to get out there for why Robinhood stopped trading on GME. Selling a stock short is NOT illegal. It is a perfectly valid type of investment according to the SEC: “D. Are short sales legal? Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.” Basically – you can’t short sell a stock to manipulate the price down so you can buy a lot more of it later. If you believe a stock is overpriced and short sell it, that is legal. That is exactly what tons of retail traders and hedge funds do every day, including on Gamestop. On the other hand, manipulating a stock price upwards to cause a short squeeze IS illegal according to the same SEC article: “Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.” Unprecedented numbers of people on Reddit, Twitter, and elsewhere collaborated to intentionally create a short squeeze on GME in the last week. No one talked about a fundamental case why Gamestop the company was worth a lot of money and would be successful in the future; instead everyone made the argument that due to a very high short interest of 100%+, that a short squeeze would send the price “to the moon”. That is illegal according to the SEC. Multiple brokerages, especially Robinhood, probably had their attorneys tell them that “Hey, you are aiding and abetting illegal activity by enabling a short squeeze and could be liable criminally or civilly if you continue to allow this blatant illegal activity on your platform”. So they decided to stop it by only allowing people to close their positions rather than open new ones in support of the short squeeze. Another strong reason is that if the short squeeze caused the GME stock to go to 5000 in a sudden leap, tons of traders (both retail and professional) could instantly go broke, and then the brokerage (Robinhood) would be left holding the bag. For example, picture a retail investor with a Robinhood account had sold call options in the amount of $100,000 and their account was worth $200,000. If the price gapped from 300 to 5000 and those options were exercised, that trader could have a loss of $10,000,000. He would lose the value of his account, $200,000… but the brokerage would have to make up the rest of the settlement and take a loss of $9,800,000. Now multiply that by thousands of accounts…. no brokerage wants to take the risk of being bankrupted, so they shut it down. The two strong reasons Robinhood and other brokers stopped trading was to prevent legal liability from enabling illegal activity on their platform, and for wanting to avoid potentially massive banktuptcy from traders unable to cover their losses.
deleted 6y ago
[deleted]

by anm89 6y ago

alangibson 6y ago

The SEC has led the charge of government agencies away from anything that could reasonably be called regulation. Take note of how often the term 'oversight' is used vs 'regulation' when these guys are talking.

ethbr0 6y ago
Last I checked, the SEC doesn't pay very well compared to financial law / trading...
- alangibson 6y ago
  There are lots of skilled but civic minded people in all the three letter agencies. The problem isn't people, it's ideology. Namely market fetishism and the assumption that if you're rich you just know better.
anm89 6y ago
Yeah, I assume in reality, this is essentially the exact opposite what is happening. I would imagine the SEC is involved behind the scenes in coordinating these shutdowns. That feels like a huge violation of their stated intent though.
totalZero 6y ago
> how often the term 'oversight' is used vs 'regulation' when these guys are talking. Is that how we're determining efficacy now...? Semantics? I take it that you like FINRA because of the R in the name.
- alangibson 6y ago
  What? My point is that they see themselves as mall cops observing and reporting, not actively regulating behavior. That makes a pretty big difference in efficacy.
  - totalZero 6y ago
    What you said was that they often use the word "observe" rather than "regulate," and that this is somehow reflective of the way they do their jobs. That's a purely semantic viewpoint and a ridiculous way to judge the efficacy of any regulator. In actual fact, they use the term "enforcement action." Here's their report from 2020. See for yourself: https://www.sec.gov/files/enforcement-annual-report-2020.pdf https://www.sec.gov/files/enforcement-annual-report-2020.pdf

dmurray 6y ago

I think we can be certain the SEC will open an investigation. They don't generally work in real time though.

ritchiea 6y ago

I've been reading WSB since yesterday and while I understand the outrage about blocking trading. They started blocking trading with $GME trading in the $400's, and a slew of redditors on WSB, Discord & Telegram pushing penny stocks. It started out a crusade against the hedge fund shorting $GME and quickly turned into rallying dumb money to pump and dump penny stocks. Looking at the direction things were going it seems like Robinhood acted responsibly in cutting off the buys of AMC, BB, NOK, etc. They're all stocks that have been propped up artificially in the last 48 hours based on the hype and attention generated by the Gamestop story. No one serious thinks Gamestop stock is worth $400+. Robinhood cut off buying at the point when unsophisticated investors were caught up in a stampede to "stick it to the man." Seems like they did the right thing.

nightowl_games 6y ago
> Robinhood acted responsibly No. This is against the Free Market hypothesis. We are supposed to let the Dumb Money get into the market, fail out and learn their lesson.
- shrimpx 6y ago
  Wall Street is/will be having a ball with the new administration desperate to keep the market "stable". Stable == deliberately and slowly bled by hedge funds.
- tome 6y ago
  What's the Free Market hypothesis?
adoxyz 6y ago
Should Robinhood be an arbiter of what is a reasonable trade and what people can spend their money on? Because if so, they have a lot of restricting to do to keep people safe...
snarf21 6y ago
What about the people that are trying to double down to protect their long position? What about the money they will lose? Either the market is efficient or it isn't.

racl101 6y ago

> Isn't this pretty much a major component of their intended purpose? Reminds me of the scene in the The Big Short where the hot chick in the pool who currently works for the SEC (at the time) is in town in Vegas for a conference hoping to run into some Wall Street banker dudes so she can schmooze and float her resume to them. And it's not a conflict of interest.

shrimpx 6y ago

I have a bit of knowledge from friends who work in fintech, and the sentiment among fintech companies seems to be that SEC doesn't matter. The fine is small and comes way too late. You can simply account for an approximate future fine and move forward with your shady business.

silexia 6y ago
This will probably be my least popular post ever, but the explanation needs to get out there for why Robinhood stopped trading on GME. Selling a stock short is NOT illegal. It is a perfectly valid type of investment according to the SEC: “D. Are short sales legal? Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.” Basically – you can’t short sell a stock to manipulate the price down so you can buy a lot more of it later. If you believe a stock is overpriced and short sell it, that is legal. That is exactly what tons of retail traders and hedge funds do every day, including on Gamestop. On the other hand, manipulating a stock price upwards to cause a short squeeze IS illegal according to the same SEC article: “Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.” Unprecedented numbers of people on Reddit, Twitter, and elsewhere collaborated to intentionally create a short squeeze on GME in the last week. No one talked about a fundamental case why Gamestop the company was worth a lot of money and would be successful in the future; instead everyone made the argument that due to a very high short interest of 100%+, that a short squeeze would send the price “to the moon”. That is illegal according to the SEC. Multiple brokerages, especially Robinhood, probably had their attorneys tell them that “Hey, you are aiding and abetting illegal activity by enabling a short squeeze and could be liable criminally or civilly if you continue to allow this blatant illegal activity on your platform”. So they decided to stop it by only allowing people to close their positions rather than open new ones in support of the short squeeze. Another strong reason is that if the short squeeze caused the GME stock to go to 5000 in a sudden leap, tons of traders (both retail and professional) could instantly go broke, and then the brokerage (Robinhood) would be left holding the bag. For example, picture a retail investor with a Robinhood account had sold call options in the amount of $100,000 and their account was worth $200,000. If the price gapped from 300 to 5000 and those options were exercised, that trader could have a loss of $10,000,000. He would lose the value of his account, $200,000… but the brokerage would have to make up the rest of the settlement and take a loss of $9,800,000. Now multiply that by thousands of accounts…. no brokerage wants to take the risk of being bankrupted, so they shut it down. The two strong reasons Robinhood and other brokers stopped trading was to prevent legal liability from enabling illegal activity on their platform, and for wanting to avoid potentially massive banktuptcy from traders unable to cover their losses.

deleted 6y ago

[deleted]