6 ms·

If that's the case, then the cost of violating rules for them is trivial enough that they can simply just keep doing this: 1) pump a stock price by allowing buy

by wbsun 6y ago

If that's the case, then the cost of violating rules for them is trivial enough that they can simply just keep doing this: 1) pump a stock price by allowing buy but restricting sell, 2) then they short this stock to 100%+, 3) they allow sell but restricting buy to collapse the price. Is the society already working this way?

hirundo 6y ago
I expect a larger cost from violating the trust of their customers. They'll lose many and if they do grow, grow more slowly. It's an advantage to their competitors.
- neltnerb 6y ago
  What is actually interesting to me is that it would be shocking of Robinhood didn't anticipate getting sued over this. It smells and looks like halting trading because their owners didn't like the result. Maybe the lawsuit will fail, but they will obviously take a giant reputational hit and it is fascinating to me that they chose to do that. What is the upside? The only thing that makes sense to me is that the owners of Robinhood have too much conflict of interest with the hedge funds that were losing money (and so are acting against the best interests of Robinhood itself in favor of their funders). Alternatively, maybe they're being honest about it and what's going on at this point has nothing to do with hedge funds and everything to do with what appears to be a scheme to pump up the price and the people that are controlling the narrative sell first. It's unclear what hedge fund is getting it stuck to them at this point, didn't they say they covered their position already? If that is true, then it really does start to look like what started as an interesting way to penalize hedge funds doing this has turned into a bitcoin-style bubble. Which can also be a useful point to make, but a point that is completely disconnected from the desire to screw over hedge funds.
  - gerash 6y ago
    Cryptocurrencies are also extremely volatile but I don't see them disabling the "buy" button when the prices shoot up. I personally am going to switch away from them to some other brokerage. Their app is very well made though so I hope the competition catches up
    - ashkankiani 6y ago
      You must not be familiar with several exchanges including Coinbase doing this exact thing a few years ago. Cryptocurrencies still have to go through an exchange, usually.
  - voisin 6y ago
    I think Robinhood was faced with either doing this and getting sued or losing a huge amount of revenue from Citadel, which paid them to front run their users. Lesson: don’t have an evil business model because it will catch up to you.
vkou 6y ago
So, my non-lawyer, worked-in-finance-software-but-not-actually-trading layman's understanding of the situation is that: 1. The problem with RobinHood's behaviour here, is that they are doing price manipulation (By only allowing sells, instead of buys.) 2. Price manipulation isn't really a crime against their customers, it's a crime against the stock market. Their customers will sue them, but probably won't get much. It's a bit hard to make a case for "You stopped me from trading, when I was planning on making a lot of money from trading, by cashing out right before a bubble popped." 3. The SEC is supposed to deal with crimes against the stock market. They may or may not sanction RobinHood, but I doubt the sanctions will be serious. 4. The SEC might look into the obvious collusion problems, where the owners of the GME shorts may have reached out to the exchanges/settlement networks, and tried to block retail traders from buying GME. This may or many not result in financial penalties. Even if sanctioned, this may be worth it for the owners of those shorts, because the alternative is bankruptcy, complete financial ruin, and the sale of their children, their grandchildren, and their great grandchildren into sixty years of bondage. 5. Your thesis is sound, but the SEC works with, and for large players in the market. Those players want a mostly-fair market. If the counterparty on the other end of these trades were not retail morons on reddit, the SEC might be a bit more heavy-handed in their enforcement. The thing is, most price rallies are not driven by retail morons on reddit... So, if your business plan consists of "Short a stock to 100%, then call up all the exchanges and settlement networks, and tell them to only allow you to buy stocks," there's going to be a lot of really wealthy counterparties to your trades, who are going to be really, really pissed, and you will probably lose all your money and go to jail. #5 is unlikely to happen here, because the narrative around this is 'Ha, look at all the dumb retail money driving a bubble, we are just deflating it before retail traders get burnt.' And that narrative is partially true, which is why it's making the news cycles, and serious talking heads on the television repeat it with a straight face. ... Also, I would like to point out that there is nothing wrong with shorting a stock, or shorting a stock past 100%. Yes, it can trigger a short squeeze. No, I don't really think there should be rules against it, or against short squeezes. These are institutional investors, who surely must understand that short-selling a stock carries unbounded risk. If they wanted bounded risk, they should have bought puts.
- dragonwriter 6y ago
coliveira 6y ago
Wall street tries be subtle most of the time, but in reality this is what they do everyday. Think about it: the big companies (Morgan Stanley, GS, BofA, Ameritrade) are selling stock to retail customers, and they know for a fact what companies people are selling/buying in volume each day, so they can make trades confident that they will make money. Nobody outside this group has direct information about the sell/buy levels of each stock, so this is a rigged game for them.
- JumpCrisscross 6y ago
  > Nobody outside this group has direct information about the sell/buy levels of each stock Order books have been nationally integrated since 2005 [1]. This is how independent HFT firms got their start. [1] https://en.wikipedia.org/wiki/Regulation_NMS https://en.wikipedia.org/wiki/Regulation_NMS
- Chris2048 6y ago
  > so they can make trades confident that they will make money this would be illegal. Any evidence this happens?
tshaddox 6y ago
> Is the society already working this way? Remember "too big to fail"?
franklampard 6y ago
I am pretty sure that Wall Street is full of manipulation and insider trading. This kind of blatant manipulation is the first time. And yes if they get away with it, chances are that they will do more of it.

by wbsun 6y ago

hirundo 6y ago

I expect a larger cost from violating the trust of their customers. They'll lose many and if they do grow, grow more slowly. It's an advantage to their competitors.

neltnerb 6y ago
What is actually interesting to me is that it would be shocking of Robinhood didn't anticipate getting sued over this. It smells and looks like halting trading because their owners didn't like the result. Maybe the lawsuit will fail, but they will obviously take a giant reputational hit and it is fascinating to me that they chose to do that. What is the upside? The only thing that makes sense to me is that the owners of Robinhood have too much conflict of interest with the hedge funds that were losing money (and so are acting against the best interests of Robinhood itself in favor of their funders). Alternatively, maybe they're being honest about it and what's going on at this point has nothing to do with hedge funds and everything to do with what appears to be a scheme to pump up the price and the people that are controlling the narrative sell first. It's unclear what hedge fund is getting it stuck to them at this point, didn't they say they covered their position already? If that is true, then it really does start to look like what started as an interesting way to penalize hedge funds doing this has turned into a bitcoin-style bubble. Which can also be a useful point to make, but a point that is completely disconnected from the desire to screw over hedge funds.
- gerash 6y ago
  Cryptocurrencies are also extremely volatile but I don't see them disabling the "buy" button when the prices shoot up. I personally am going to switch away from them to some other brokerage. Their app is very well made though so I hope the competition catches up
  - ashkankiani 6y ago
    You must not be familiar with several exchanges including Coinbase doing this exact thing a few years ago. Cryptocurrencies still have to go through an exchange, usually.
- voisin 6y ago
  I think Robinhood was faced with either doing this and getting sued or losing a huge amount of revenue from Citadel, which paid them to front run their users. Lesson: don’t have an evil business model because it will catch up to you.

vkou 6y ago

So, my non-lawyer, worked-in-finance-software-but-not-actually-trading layman's understanding of the situation is that: 1. The problem with RobinHood's behaviour here, is that they are doing price manipulation (By only allowing sells, instead of buys.) 2. Price manipulation isn't really a crime against their customers, it's a crime against the stock market. Their customers will sue them, but probably won't get much. It's a bit hard to make a case for "You stopped me from trading, when I was planning on making a lot of money from trading, by cashing out right before a bubble popped." 3. The SEC is supposed to deal with crimes against the stock market. They may or may not sanction RobinHood, but I doubt the sanctions will be serious. 4. The SEC might look into the obvious collusion problems, where the owners of the GME shorts may have reached out to the exchanges/settlement networks, and tried to block retail traders from buying GME. This may or many not result in financial penalties. Even if sanctioned, this may be worth it for the owners of those shorts, because the alternative is bankruptcy, complete financial ruin, and the sale of their children, their grandchildren, and their great grandchildren into sixty years of bondage. 5. Your thesis is sound, but the SEC works with, and for large players in the market. Those players want a mostly-fair market. If the counterparty on the other end of these trades were not retail morons on reddit, the SEC might be a bit more heavy-handed in their enforcement. The thing is, most price rallies are not driven by retail morons on reddit... So, if your business plan consists of "Short a stock to 100%, then call up all the exchanges and settlement networks, and tell them to only allow you to buy stocks," there's going to be a lot of really wealthy counterparties to your trades, who are going to be really, really pissed, and you will probably lose all your money and go to jail. #5 is unlikely to happen here, because the narrative around this is 'Ha, look at all the dumb retail money driving a bubble, we are just deflating it before retail traders get burnt.' And that narrative is partially true, which is why it's making the news cycles, and serious talking heads on the television repeat it with a straight face. ... Also, I would like to point out that there is nothing wrong with shorting a stock, or shorting a stock past 100%. Yes, it can trigger a short squeeze. No, I don't really think there should be rules against it, or against short squeezes. These are institutional investors, who surely must understand that short-selling a stock carries unbounded risk. If they wanted bounded risk, they should have bought puts.

dragonwriter 6y ago

coliveira 6y ago

Wall street tries be subtle most of the time, but in reality this is what they do everyday. Think about it: the big companies (Morgan Stanley, GS, BofA, Ameritrade) are selling stock to retail customers, and they know for a fact what companies people are selling/buying in volume each day, so they can make trades confident that they will make money. Nobody outside this group has direct information about the sell/buy levels of each stock, so this is a rigged game for them.

JumpCrisscross 6y ago
> Nobody outside this group has direct information about the sell/buy levels of each stock Order books have been nationally integrated since 2005 [1]. This is how independent HFT firms got their start. [1] https://en.wikipedia.org/wiki/Regulation_NMS https://en.wikipedia.org/wiki/Regulation_NMS
Chris2048 6y ago
> so they can make trades confident that they will make money this would be illegal. Any evidence this happens?

tshaddox 6y ago

> Is the society already working this way? Remember "too big to fail"?

franklampard 6y ago

I am pretty sure that Wall Street is full of manipulation and insider trading. This kind of blatant manipulation is the first time. And yes if they get away with it, chances are that they will do more of it.