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“ANTHONY DENIER: Well, it wasn't our choice. Our clearing firm gave us a call and said we're going to have to stop allowing new opening positions in the three n

“ANTHONY DENIER: Well, it wasn't our choice. Our clearing firm gave us a call and said we're going to have to stop allowing new opening positions in the three names, AMC, GME, and KOSS. Highly volatile, and what happens is this is not a political decision. And unfortunately, it got political. I think, you know, I think it was once said that don't let any good crisis go to waste. And that's clearly what's happening here. And we're seeing politicians jump on the bandwagon so they can get-- so they can start trending on Twitter. But in reality, what's going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. And because of the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive.“[1] from the CEO of Webull. [1]- https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict... Edit: Non amp link.

kart23 6y ago
suggest you use a non-amp link: https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict...
- sbelskie 6y ago
  Done. Thanks!
- deleted 6y ago
  [deleted]
carstenhag 6y ago
And these businesses have contracts specifying that they can increase prices absurdly high from one day to the other?
- JumpCrisscross 6y ago
  > these businesses have contracts specifying that they can increase prices absurdly high from one day to the other? The Depository Trust & Clearing Corporation settles most listed securities transactions in America; in 2011, it did $1.7 quadrillion [1]. You've never heard of it unless you're a professional trader, but it's actually quite fascinating to read up on. Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker. There are clear rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If something goes up and down more, ceteris paribus, small mistakes are more likely to become firm-ending ones.) Again, these are well-known formulas. Unusually, however, Robinhood didn't build this into their fee model. Given market makers, their revenue source, stopped making markets in GME on account of how volatility effects their risk profile, executing GME trades would leave Robinhood sending orders to an exchange, which may cost money, and ponying up collateral, which also costs money. In my opinion, that's what they should have done. Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don't know if Robinhood is able to do that quickly. So instead they pulled the plug. [1] https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_... [2] https://www.dtcclearning.com/products-and-services/settlement/settlement-services/risk-management/296-risk-management-overview/2277-collateral-valuation-of-securities.html https://www.dtcclearning.com/products-and-services/settlemen...
  - CSSer 6y ago
    This is probably the most fascinating thing I've read so far on the subject. Given that many other brokerages seem to be doing the same as Robinhood, is it safe to assume they also are not accounting for such situations? Also, another user shared a link above where Robinhood claims there are two types of brokers, introducing and clearing, and describes themselves as the latter[0]. Is that at all relevant here? If I understand correctly, "clearing house" is still a distinct concept that is very much involved. [0]: https://robinhood.com/us/en/support/articles/whats-clearing-by-robinhood/ https://robinhood.com/us/en/support/articles/whats-clearing-...
u10 6y ago
Of course it's not political, in the sense that RH routes their order flow through Citadel's MM arm, who are probably getting squeezed by Gamma on their (previously) OTM naked calls, and if Citadel is the prime broker for all of these shorts _significant_ exposure on that end, as well as the exposure that Citadel hedge fund has on the short position through Melvin.
- FireBeyond 6y ago
  > if Citadel is the prime broker for all of these shorts _significant_ exposure on that end, as well as the exposure that Citadel hedge fund has on the short position through Melvin. Isn't this meant to be the reason for the "Chinese Wall"? In theory, Citadel as a brokerage is meant to have no insight into the operations or needs or desires of Citadel Hedge Fund. The technically correct answer here seems to be "not my problem", however... not so much.
  - u10 6y ago
    In theory... in practice? So much illegal shit goes down in finance all of the time. rarely if ever it gets caught. And when they have literal billions on the line a slap on the wrist fine is preferable.
- dillondoyle 6y ago
  This was a better worded answer to the question I posted in a sub comment: If I'm understanding (i might not be) this is why it feels like fraud/not following fiduciary responsibility to their clearing partners. -- Does citadel clear their own trades? I could be off here, but what I'm asking is getting at like if they are on all the sides of the transaction as market maker, participating or allow others to participate in 'betting', and clearing the trades themselves? Does a trade even need to clear if it's just moving internally changing col A owner ID from 1234 to 9999?
  - u10 6y ago
    Citadel has two sides to their business; Citadel Securities and Citadel. Citadel is the investment side and Citadel Securities is the MM side. I'm assuming that Citadel Securities does not clear the trades for Citadel, but don't quote me on that.
FabHK 6y ago
Insightful interview. More money quotes: ANTHONY DENIER (CEO Webull): [...] our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it. And they simply can't afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar-- smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market. ZACK GUZMAN (interviewer): [...] We had the CEO of Robinhood on yesterday kind of talking about why they were taking a different tact [sic] and not restricting trading because, you know, they wanted to leave it to their individual retail investors to make these decisions. Didn't want to step in and fuel into the nanny state idea. But what about maybe curbing this a little bit earlier? Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that? ANTHONY DENIER (CEO Webull): Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions. Liquidations can happen at any time. This is general market mechanics. We have customer protections in place. We would never stop a customer from being able to get out of a position. [...] I think when you say the regulators stepping in, it will happen on both sides. It's going to happen on looking into should a hedge fund be allowed to get a 10 times leverage and short 140%, 150% of a company. Should that be allowed in a regular-- you know, in a healthy market. And then, on the other side, should it also be allowed to have mob and herd mentality of rolling into stocks? And should these things be curbed? Look at the examples that happened overnight in Australia, where a mining company, GME in Australia, was up 100% overnight because people just blindly went in on anything GME without reading below the headline.
- jimbob45 6y ago
  He lied. They’re forcing retail investors to sell their positions.
  - 6y ago
einrealist 6y ago
Robinhood does clearing by itself. Webull uses a partner company for clearing. But still, I think that there are legitimate factors for why Robinhood stopped taking buy orders for those stocks, like ensuring liquidity through clearinghouse deposits while trades are underway.
- 6nf 6y ago
  I thought RH used Citadel
  - einrealist 6y ago
    They write about it in their FAQs: https://robinhood.com/us/en/support/articles/whats-clearing-by-robinhood/ https://robinhood.com/us/en/support/articles/whats-clearing-...
  - sangnoir 6y ago
    To my knowledge, RH sells its users' order flow to Citadel (which is how they make money).
    - andylei 6y ago
      clearing is totally separate from flow
- youeseh 6y ago
  Yes, the factors are governed by how they make money. If one is not the customer, then they are the product!
- nrmitchi 6y ago
  tldr; even if Robinhood does it's own clearing (which I'm not suggesting they don't) it's reasonable to not risk their business to support the current market. Does "the market can remain irrational longer than Robinhood can remain solvent" apply here? Any valid argument that would cause another clearing house to not be able to afford to handle these orders would seemingly-equally apply to Robinhood's own clearing house; no matter who owns it, the clearing house can't afford to go broke. If someone is arguing that Robinhood should have the risk tolerance and reserves of a larger financial institution in order to service high volatility trades.... then maybe that person should use a larger financial institution to place these high volatility trades.
cure 6y ago
That makes sense as an explanation - but this interview is with the CEO of another brokerage, Webull. It seems that Robinhood does its own clearing (maybe not for everything?), cf. https://robinhood.com/us/en/support/articles/whats-clearing-by-robinhood/ https://robinhood.com/us/en/support/articles/whats-clearing-..., so the story is probably a bit more complicated there. Could still be a similar dynamic, of course.
- silexia 6y ago
  Short squeezes are illegal. Any brokerage that knowingly allowed a short squeeze to continue without taking action, could have potentially massive legal liabilities. That is another explanation beyond the 2 day settlement window that Webull published.
  - andrewgioia 6y ago
    You keep saying this here but AFAIK they are not illegal. What are you basing this on?
    - silexia 6y ago
      The SEC published guidance here https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
      - andrewgioia 6y ago
        Yeah you keep linking that too, it says market manipulation/schemes are illegal. It's absolutely unclear if that's the case here, and in fact based on the few extreme times short selling has been illegal I'd say this definitely does not get there.
  - NOGDP 6y ago
    > Short squeezes are illegal. Nope.
    - 6y ago
smsm42 6y ago
This sounds very plausible, but: I don't remember any cases when I've ever heard of specific platform stopping trade for specific stock just for volatility. I've heard about the cases of trade stopping when something clearly going wrong - like market crash, or bot-driven feedback loop, or such. And this usually then comes for the whole exchange or all exchanges the stock is listed on, not just a handful of platforms. That of course doesn't mean it didn't happen - just that I haven't heard of it. So is such thing common and does anybody have examples of such things happening in the past - I understand it may not gather as much press as this one but somebody should have mentioned it somewhere? Is it indeed a routine thing that got overhyped, or is it an exceptional thing trying to hide behind a routine procedure?
- slaymaker1907 6y ago
  Also, these stops are supposed to be written into the rules BEFOREHAND and should have clear rules for when they can and cannot happen.
deleted 6y ago
[deleted]
kkotak 6y ago
Wait his name is Denier and WeBull is the company name? Humm..
smsm42 6y ago
Now there are reports they (robinhood, not webull) are force-selling positions: https://redstate.com/scotthounsell/2021/01/28/robinhood-app-force-sells-investors-gamestop-stock-n318132 https://redstate.com/scotthounsell/2021/01/28/robinhood-app-... If that's true (never assume something coming from Twitter is true without verifying, so it's still a rumor by now) then I don't see how "it's too risky" explanation holds. And of course selling somebody's property against their will is a fraud, at least on the face of it (IANAL). Edit: screenshot from reddit: https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=medium https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=...

kart23 6y ago

suggest you use a non-amp link: https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict...

sbelskie 6y ago
Done. Thanks!
deleted 6y ago
[deleted]

carstenhag 6y ago

And these businesses have contracts specifying that they can increase prices absurdly high from one day to the other?

JumpCrisscross 6y ago
> these businesses have contracts specifying that they can increase prices absurdly high from one day to the other? The Depository Trust & Clearing Corporation settles most listed securities transactions in America; in 2011, it did $1.7 quadrillion [1]. You've never heard of it unless you're a professional trader, but it's actually quite fascinating to read up on. Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker. There are clear rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If something goes up and down more, ceteris paribus, small mistakes are more likely to become firm-ending ones.) Again, these are well-known formulas. Unusually, however, Robinhood didn't build this into their fee model. Given market makers, their revenue source, stopped making markets in GME on account of how volatility effects their risk profile, executing GME trades would leave Robinhood sending orders to an exchange, which may cost money, and ponying up collateral, which also costs money. In my opinion, that's what they should have done. Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don't know if Robinhood is able to do that quickly. So instead they pulled the plug. [1] https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_... [2] https://www.dtcclearning.com/products-and-services/settlement/settlement-services/risk-management/296-risk-management-overview/2277-collateral-valuation-of-securities.html https://www.dtcclearning.com/products-and-services/settlemen...
- CSSer 6y ago
  This is probably the most fascinating thing I've read so far on the subject. Given that many other brokerages seem to be doing the same as Robinhood, is it safe to assume they also are not accounting for such situations? Also, another user shared a link above where Robinhood claims there are two types of brokers, introducing and clearing, and describes themselves as the latter[0]. Is that at all relevant here? If I understand correctly, "clearing house" is still a distinct concept that is very much involved. [0]: https://robinhood.com/us/en/support/articles/whats-clearing-by-robinhood/ https://robinhood.com/us/en/support/articles/whats-clearing-...

u10 6y ago

Of course it's not political, in the sense that RH routes their order flow through Citadel's MM arm, who are probably getting squeezed by Gamma on their (previously) OTM naked calls, and if Citadel is the prime broker for all of these shorts _significant_ exposure on that end, as well as the exposure that Citadel hedge fund has on the short position through Melvin.

FireBeyond 6y ago
> if Citadel is the prime broker for all of these shorts _significant_ exposure on that end, as well as the exposure that Citadel hedge fund has on the short position through Melvin. Isn't this meant to be the reason for the "Chinese Wall"? In theory, Citadel as a brokerage is meant to have no insight into the operations or needs or desires of Citadel Hedge Fund. The technically correct answer here seems to be "not my problem", however... not so much.
- u10 6y ago
  In theory... in practice? So much illegal shit goes down in finance all of the time. rarely if ever it gets caught. And when they have literal billions on the line a slap on the wrist fine is preferable.
dillondoyle 6y ago
This was a better worded answer to the question I posted in a sub comment: If I'm understanding (i might not be) this is why it feels like fraud/not following fiduciary responsibility to their clearing partners. -- Does citadel clear their own trades? I could be off here, but what I'm asking is getting at like if they are on all the sides of the transaction as market maker, participating or allow others to participate in 'betting', and clearing the trades themselves? Does a trade even need to clear if it's just moving internally changing col A owner ID from 1234 to 9999?
- u10 6y ago
  Citadel has two sides to their business; Citadel Securities and Citadel. Citadel is the investment side and Citadel Securities is the MM side. I'm assuming that Citadel Securities does not clear the trades for Citadel, but don't quote me on that.

FabHK 6y ago

Insightful interview. More money quotes: ANTHONY DENIER (CEO Webull): [...] our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it. And they simply can't afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar-- smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market. ZACK GUZMAN (interviewer): [...] We had the CEO of Robinhood on yesterday kind of talking about why they were taking a different tact [sic] and not restricting trading because, you know, they wanted to leave it to their individual retail investors to make these decisions. Didn't want to step in and fuel into the nanny state idea. But what about maybe curbing this a little bit earlier? Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that? ANTHONY DENIER (CEO Webull): Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions. Liquidations can happen at any time. This is general market mechanics. We have customer protections in place. We would never stop a customer from being able to get out of a position. [...] I think when you say the regulators stepping in, it will happen on both sides. It's going to happen on looking into should a hedge fund be allowed to get a 10 times leverage and short 140%, 150% of a company. Should that be allowed in a regular-- you know, in a healthy market. And then, on the other side, should it also be allowed to have mob and herd mentality of rolling into stocks? And should these things be curbed? Look at the examples that happened overnight in Australia, where a mining company, GME in Australia, was up 100% overnight because people just blindly went in on anything GME without reading below the headline.

jimbob45 6y ago
He lied. They’re forcing retail investors to sell their positions.
- 6y ago

einrealist 6y ago

Robinhood does clearing by itself. Webull uses a partner company for clearing. But still, I think that there are legitimate factors for why Robinhood stopped taking buy orders for those stocks, like ensuring liquidity through clearinghouse deposits while trades are underway.

6nf 6y ago
I thought RH used Citadel
- einrealist 6y ago
  They write about it in their FAQs: https://robinhood.com/us/en/support/articles/whats-clearing-by-robinhood/ https://robinhood.com/us/en/support/articles/whats-clearing-...
- sangnoir 6y ago
  To my knowledge, RH sells its users' order flow to Citadel (which is how they make money).
  - andylei 6y ago
    clearing is totally separate from flow
youeseh 6y ago
Yes, the factors are governed by how they make money. If one is not the customer, then they are the product!
nrmitchi 6y ago
tldr; even if Robinhood does it's own clearing (which I'm not suggesting they don't) it's reasonable to not risk their business to support the current market. Does "the market can remain irrational longer than Robinhood can remain solvent" apply here? Any valid argument that would cause another clearing house to not be able to afford to handle these orders would seemingly-equally apply to Robinhood's own clearing house; no matter who owns it, the clearing house can't afford to go broke. If someone is arguing that Robinhood should have the risk tolerance and reserves of a larger financial institution in order to service high volatility trades.... then maybe that person should use a larger financial institution to place these high volatility trades.

cure 6y ago

That makes sense as an explanation - but this interview is with the CEO of another brokerage, Webull. It seems that Robinhood does its own clearing (maybe not for everything?), cf. https://robinhood.com/us/en/support/articles/whats-clearing-by-robinhood/ https://robinhood.com/us/en/support/articles/whats-clearing-..., so the story is probably a bit more complicated there. Could still be a similar dynamic, of course.

silexia 6y ago
Short squeezes are illegal. Any brokerage that knowingly allowed a short squeeze to continue without taking action, could have potentially massive legal liabilities. That is another explanation beyond the 2 day settlement window that Webull published.
- andrewgioia 6y ago
  You keep saying this here but AFAIK they are not illegal. What are you basing this on?
  - silexia 6y ago
    The SEC published guidance here https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
    - andrewgioia 6y ago
      Yeah you keep linking that too, it says market manipulation/schemes are illegal. It's absolutely unclear if that's the case here, and in fact based on the few extreme times short selling has been illegal I'd say this definitely does not get there.
- NOGDP 6y ago
  > Short squeezes are illegal. Nope.
  - 6y ago

smsm42 6y ago

This sounds very plausible, but: I don't remember any cases when I've ever heard of specific platform stopping trade for specific stock just for volatility. I've heard about the cases of trade stopping when something clearly going wrong - like market crash, or bot-driven feedback loop, or such. And this usually then comes for the whole exchange or all exchanges the stock is listed on, not just a handful of platforms. That of course doesn't mean it didn't happen - just that I haven't heard of it. So is such thing common and does anybody have examples of such things happening in the past - I understand it may not gather as much press as this one but somebody should have mentioned it somewhere? Is it indeed a routine thing that got overhyped, or is it an exceptional thing trying to hide behind a routine procedure?

slaymaker1907 6y ago
Also, these stops are supposed to be written into the rules BEFOREHAND and should have clear rules for when they can and cannot happen.

deleted 6y ago

[deleted]

kkotak 6y ago

Wait his name is Denier and WeBull is the company name? Humm..

smsm42 6y ago

Now there are reports they (robinhood, not webull) are force-selling positions: https://redstate.com/scotthounsell/2021/01/28/robinhood-app-force-sells-investors-gamestop-stock-n318132 https://redstate.com/scotthounsell/2021/01/28/robinhood-app-... If that's true (never assume something coming from Twitter is true without verifying, so it's still a rumor by now) then I don't see how "it's too risky" explanation holds. And of course selling somebody's property against their will is a fraud, at least on the face of it (IANAL). Edit: screenshot from reddit: https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=medium https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=...