6 ms·

if hedge funds were long, it would have happened? it is short-sellers who need to pay up the margin calls etc. the way short selling works, it can create crazy

if hedge funds were long, it would have happened? it is short-sellers who need to pay up the margin calls etc. the way short selling works, it can create crazy leverage it is definitely a lie

JumpCrisscross 6y ago
> if hedge funds were long, it would have happened? Yes. DTCC changes collateral requirements on securities all the time [1]. The collateral requirements they put on GME aren't even that egregious. Robinhood just didn't want to pay up. [1] Literally, every day. But the haircuts they apply to the last day's market prices are also quite variable.
- FabHK 6y ago
  Mate, you can't just walk in here with detailed knowledge and settlement mechanics and all. It's a revolution against the conspiracy! </s>
- zaroth 6y ago
  What does DTCC collateral requirements have to do with retail investors trying to buy shares in a cash account? Stopping margin trading, absolutely. Stopping short selling, of course. But we’re not talking about either of those things. We’re talking about cash-funded limit Buy orders on a duly listed publicly traded stock.
  - JumpCrisscross 6y ago
    > What does DTCC collateral requirements have to do with retail investors trying to buy shares in a cash account? See [1]. Long story short: Robinhood lets you buy and sell a share instantly. In the real world, those trades take days to settle and clear. To bridge the gap, Robinhood loans you the difference. And Robinhood, in turn, is "loaned" [2] some of that difference by the DTCC. So when the cost of that loan goes up, their costs go up, and they responded to that cost pressure by turning off trading. (There are other options.) [1] https://news.ycombinator.com/item?id=25950361 https://news.ycombinator.com/item?id=25950361 [2] In quotes because it's technically a collateral requirement. If you sell $100 of stock, DTCC may tell Robinhood it only needs to put up $2 of stock as collateral while Robinhood gets the rest from wherever it's getting it from so it can pass it along to the next person. The $98 is "loaned," as in it's owed to DTCC. If Robinhood fell down, DTCC would sell that collateral and buy the rest of the shares in the market. In this case, DTCC said "these shares are super risky, and may lose all their value in a heartbeat, I need you to hand me 100% of the shares you say you are selling when you sell them." And Robinhood said no. Because that's expensive. [a] DTCC says put up $100 per share because DTCC is not a lender either! It has lines of credit with various banks. And the banks bear the risk of the loan defaulting. So they're setting their rates and then DTCC draws from the cheapest line.
    - areoform 6y ago
      Thank you for discussing this and bringing your perspective. Question, why are we operating near-real-time settlement systems for securities if it doesn't eliminate such risks? I don't understand why these transactions aren't being netted and conducted as close to real-time as possible. This aspect of the economy seems like a significant vulnerability.
      - FabHK 6y ago
        There is no real-time-settlement for securities, AFAIK. They're settled two biz days later. RH, of course, seemingly settles things immediately vis-a-vis its retail clients. That creates the whole web (well, not a web, really, but a snow flake with a central counterpart which branch off again) of credit and collateral, which generally works extremely well, but comes to its limits with irrational price action such as this. I don't see the lack of real-time-settlement as a vulnerability so much, but more the mismatch. But I'd suggest fixing it not by increasing the frequency of settlement, but by decreasing the frequency of trading (Tobin tax (which, funnily enough, is also called Robin Hood tax [1]); replace continuous trading with a couple of auctions a day; ???). [1] https://en.wikipedia.org/wiki/Tobin_tax https://en.wikipedia.org/wiki/Tobin_tax
        areoform 6y ago
        Quick note, settlement risk is indeed serious and I've covered it somewhere else. Side note, I am against the Tobin Tax. I think public markets are more important than most folks believe. I do believe that frequent trading is a good thing, as is retail participation in markets. One of the amplifiers of income inequality, I suspect, in the past few decades has been the fact that high-growth companies that normally would have gone public sooner have stayed private for longer, denying participation from the public market. For example, a well chosen index of Dot Com stocks that included Amazon, Google, E-Bay etc. picked in 1998 would have, provided there was continuous investment and a long-hold, injected a large amount of capital back into the public and retirement systems, which would have helped lift all boats so to speak. AMZN was originally at around $4/share (adjusted for splits, provided this data source is correct, https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-price-history https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-... ), if you had bought 1k stocks of the company in pre-2000, and held until now. Your originally $4k position would be worth 3.2M. That's quite crazy. And it's retirement money for a lot of people. Amazon's growth has occurred in the public, giving retail investors the ability to tap into the formation of new wealth. SpaceX's, AirBNB's, DropBox's etc hasn't. They're playthings of the well heeled. Not the gumshoes. We need to re-orient public markets in such a way that everyone gets to participate in wealth creation. Not restrict it even further.

if hedge funds were long, it would have happened? it is short-sellers who need to pay up the margin calls etc. the way short selling works, it can create crazy leverage it is definitely a lie

JumpCrisscross 6y ago

> if hedge funds were long, it would have happened? Yes. DTCC changes collateral requirements on securities all the time [1]. The collateral requirements they put on GME aren't even that egregious. Robinhood just didn't want to pay up. [1] Literally, every day. But the haircuts they apply to the last day's market prices are also quite variable.

FabHK 6y ago
Mate, you can't just walk in here with detailed knowledge and settlement mechanics and all. It's a revolution against the conspiracy! </s>
zaroth 6y ago
What does DTCC collateral requirements have to do with retail investors trying to buy shares in a cash account? Stopping margin trading, absolutely. Stopping short selling, of course. But we’re not talking about either of those things. We’re talking about cash-funded limit Buy orders on a duly listed publicly traded stock.
- JumpCrisscross 6y ago
  > What does DTCC collateral requirements have to do with retail investors trying to buy shares in a cash account? See [1]. Long story short: Robinhood lets you buy and sell a share instantly. In the real world, those trades take days to settle and clear. To bridge the gap, Robinhood loans you the difference. And Robinhood, in turn, is "loaned" [2] some of that difference by the DTCC. So when the cost of that loan goes up, their costs go up, and they responded to that cost pressure by turning off trading. (There are other options.) [1] https://news.ycombinator.com/item?id=25950361 https://news.ycombinator.com/item?id=25950361 [2] In quotes because it's technically a collateral requirement. If you sell $100 of stock, DTCC may tell Robinhood it only needs to put up $2 of stock as collateral while Robinhood gets the rest from wherever it's getting it from so it can pass it along to the next person. The $98 is "loaned," as in it's owed to DTCC. If Robinhood fell down, DTCC would sell that collateral and buy the rest of the shares in the market. In this case, DTCC said "these shares are super risky, and may lose all their value in a heartbeat, I need you to hand me 100% of the shares you say you are selling when you sell them." And Robinhood said no. Because that's expensive. [a] DTCC says put up $100 per share because DTCC is not a lender either! It has lines of credit with various banks. And the banks bear the risk of the loan defaulting. So they're setting their rates and then DTCC draws from the cheapest line.
  - areoform 6y ago
    Thank you for discussing this and bringing your perspective. Question, why are we operating near-real-time settlement systems for securities if it doesn't eliminate such risks? I don't understand why these transactions aren't being netted and conducted as close to real-time as possible. This aspect of the economy seems like a significant vulnerability.
    - FabHK 6y ago
      There is no real-time-settlement for securities, AFAIK. They're settled two biz days later. RH, of course, seemingly settles things immediately vis-a-vis its retail clients. That creates the whole web (well, not a web, really, but a snow flake with a central counterpart which branch off again) of credit and collateral, which generally works extremely well, but comes to its limits with irrational price action such as this. I don't see the lack of real-time-settlement as a vulnerability so much, but more the mismatch. But I'd suggest fixing it not by increasing the frequency of settlement, but by decreasing the frequency of trading (Tobin tax (which, funnily enough, is also called Robin Hood tax [1]); replace continuous trading with a couple of auctions a day; ???). [1] https://en.wikipedia.org/wiki/Tobin_tax https://en.wikipedia.org/wiki/Tobin_tax
      - areoform 6y ago
        Quick note, settlement risk is indeed serious and I've covered it somewhere else. Side note, I am against the Tobin Tax. I think public markets are more important than most folks believe. I do believe that frequent trading is a good thing, as is retail participation in markets. One of the amplifiers of income inequality, I suspect, in the past few decades has been the fact that high-growth companies that normally would have gone public sooner have stayed private for longer, denying participation from the public market. For example, a well chosen index of Dot Com stocks that included Amazon, Google, E-Bay etc. picked in 1998 would have, provided there was continuous investment and a long-hold, injected a large amount of capital back into the public and retirement systems, which would have helped lift all boats so to speak. AMZN was originally at around $4/share (adjusted for splits, provided this data source is correct, https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-price-history https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-... ), if you had bought 1k stocks of the company in pre-2000, and held until now. Your originally $4k position would be worth 3.2M. That's quite crazy. And it's retirement money for a lot of people. Amazon's growth has occurred in the public, giving retail investors the ability to tap into the formation of new wealth. SpaceX's, AirBNB's, DropBox's etc hasn't. They're playthings of the well heeled. Not the gumshoes. We need to re-orient public markets in such a way that everyone gets to participate in wealth creation. Not restrict it even further.