11 ms·

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

by 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.
  - silexia 6y ago
    "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" - SEC site. See link in my reply to the other comment.
    - NOGDP 6y ago
      That entire argument depends on being able to determine individual trader's motives for their trades. Also, by that argument Robinhood is acting illegally by manipulating the availability of the stock.
    - CSSer 6y ago
      The key word there is "scheme". If we both agree out loud that the sun will rise tomorrow we're not scheming to make it so. If some dude in an expensive suit gets on TV and says a stock will fall then buys a couple billion in shorts and you do the same because you like his style the two of you aren't scheming to make it happen. Likewise, if some guy in his basement posts on an internet forum about how he's sure a stock will go up and you feel compelled to buy some too you're not scheming. Finally, if millions of people are collectively motivated by the idea that they just really dislike hedge funds, want to make some money, and maybe want to watch the world burn, so they buy into an increasingly ridiculous idea they're _still_ not scheming because they all made the independent decision to do so after doing what amounts to each individual's 'due diligence' and are not entering or exiting the position in concert.
    - spaceprison 6y ago
      I think the notion of a scheme here is what's debatable. The risk was there when these funds shorted 140% of the stock. Retail folks noticed the potential for a naturally occurring squeeze and shared the info with world.
- ALittleLight 6y ago
  Source on the illegality of short squeezes? To my knowledge the term just describes the phenomenon of prices rising as a result of shorts being forced to buy shares to settle their positions. It's a natural consequence of market forces, I don't understand how it could be illegal.
  - silexia 6y ago
    https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
    - ALittleLight 6y ago
      That doesn't say short squeezes are illegal, it says manipulating the market to cause a short squeeze is illegal - but that's not what's happening. People are buying stock to profit off of a short squeeze or to hurt the short sellers. Some people believe GameStop will go up and others think it's an opportunity to profit off of a naturally occurring short squeeze and others think it's a way to hurt the hedge funds. None of that is manipulation. By contrast preventing a million people from buying a stock at a critical moment is clearly manipulation. "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."
      - nrmitchi 6y ago
        By this logic though, if you're already in a short squeeze, then the retail buyers (the ones who are doing the squeeze) not buying any more should not cause the price to drop: the person getting squoze (did I use that word right?) will have to buy whether or not Robinhood traders are. The price would still be shooting up. In a short squeeze all that WSB had to do was hold. If your "short squeeze" is dependent on people buying more in order to create a short squeeze, then you are just coordinating to create a short squeeze, not dealing with a "natural occurring" one.
        NOGDP 6y ago
- Catsandkites 6y ago
  Can you point to the legislation that indicates this? (Curiosity)
- MrPatan 6y ago
  > Short squeezes are illegal This is the first time in all this crisis that I see anybody say that short squeezes are illegal. Can you elaborate? What's illegal about them? They have happened many times. I rememeber the VW one a while ago, and I don't rememebr anybody saying they were illegal. Edit: Right, I saw the link now. Very interesting, thanks.
- nawgz 6y ago
  This user is repeatedly posting misinformation and hiding behind links that don't support his position. I have repeatedly called them a shill and wish to spread the awareness [0]: https://news.ycombinator.com/item?id=25950680 https://news.ycombinator.com/item?id=25950680 [1]: https://news.ycombinator.com/item?id=25950493 https://news.ycombinator.com/item?id=25950493
  - dang 6y ago
    Hey, I'm afraid you broke the site guidelines badly and repeatedly. We ban accounts that do that, regardless of how wrong other commenters are or you feel they are. If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and sticking to the rules when posting here, we'd be grateful.
sbelskie 6y ago
But if they are doing their own clearing, then they are taking the risk directly, which other clearing houses seem to think is significant. Robinhood isn’t obligated to put itself at risk of bankruptcy so people can make free trades.

by cure 6y ago

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.
- silexia 6y ago
  "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" - SEC site. See link in my reply to the other comment.
  - NOGDP 6y ago
    That entire argument depends on being able to determine individual trader's motives for their trades. Also, by that argument Robinhood is acting illegally by manipulating the availability of the stock.
  - CSSer 6y ago
    The key word there is "scheme". If we both agree out loud that the sun will rise tomorrow we're not scheming to make it so. If some dude in an expensive suit gets on TV and says a stock will fall then buys a couple billion in shorts and you do the same because you like his style the two of you aren't scheming to make it happen. Likewise, if some guy in his basement posts on an internet forum about how he's sure a stock will go up and you feel compelled to buy some too you're not scheming. Finally, if millions of people are collectively motivated by the idea that they just really dislike hedge funds, want to make some money, and maybe want to watch the world burn, so they buy into an increasingly ridiculous idea they're _still_ not scheming because they all made the independent decision to do so after doing what amounts to each individual's 'due diligence' and are not entering or exiting the position in concert.
  - spaceprison 6y ago
    I think the notion of a scheme here is what's debatable. The risk was there when these funds shorted 140% of the stock. Retail folks noticed the potential for a naturally occurring squeeze and shared the info with world.
ALittleLight 6y ago
Source on the illegality of short squeezes? To my knowledge the term just describes the phenomenon of prices rising as a result of shorts being forced to buy shares to settle their positions. It's a natural consequence of market forces, I don't understand how it could be illegal.
- silexia 6y ago
  https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
  - ALittleLight 6y ago
    That doesn't say short squeezes are illegal, it says manipulating the market to cause a short squeeze is illegal - but that's not what's happening. People are buying stock to profit off of a short squeeze or to hurt the short sellers. Some people believe GameStop will go up and others think it's an opportunity to profit off of a naturally occurring short squeeze and others think it's a way to hurt the hedge funds. None of that is manipulation. By contrast preventing a million people from buying a stock at a critical moment is clearly manipulation. "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."
    - nrmitchi 6y ago
      By this logic though, if you're already in a short squeeze, then the retail buyers (the ones who are doing the squeeze) not buying any more should not cause the price to drop: the person getting squoze (did I use that word right?) will have to buy whether or not Robinhood traders are. The price would still be shooting up. In a short squeeze all that WSB had to do was hold. If your "short squeeze" is dependent on people buying more in order to create a short squeeze, then you are just coordinating to create a short squeeze, not dealing with a "natural occurring" one.
      - NOGDP 6y ago
Catsandkites 6y ago
Can you point to the legislation that indicates this? (Curiosity)
MrPatan 6y ago
> Short squeezes are illegal This is the first time in all this crisis that I see anybody say that short squeezes are illegal. Can you elaborate? What's illegal about them? They have happened many times. I rememeber the VW one a while ago, and I don't rememebr anybody saying they were illegal. Edit: Right, I saw the link now. Very interesting, thanks.
nawgz 6y ago
This user is repeatedly posting misinformation and hiding behind links that don't support his position. I have repeatedly called them a shill and wish to spread the awareness [0]: https://news.ycombinator.com/item?id=25950680 https://news.ycombinator.com/item?id=25950680 [1]: https://news.ycombinator.com/item?id=25950493 https://news.ycombinator.com/item?id=25950493
- dang 6y ago
  Hey, I'm afraid you broke the site guidelines badly and repeatedly. We ban accounts that do that, regardless of how wrong other commenters are or you feel they are. If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and sticking to the rules when posting here, we'd be grateful.

sbelskie 6y ago

But if they are doing their own clearing, then they are taking the risk directly, which other clearing houses seem to think is significant. Robinhood isn’t obligated to put itself at risk of bankruptcy so people can make free trades.