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Robinhood is said to draw on bank credit lines amid tumult
- CaliforniaKarl 6y agodang hasn't posted this yet—it's been a heck of a day, hasn't it—so I will! The discussion on this item has spread over multiple pages, so make sure you check them all! Look for the "More" link at the bottom of the page (on all but the last page), or use a link like this: https://news.ycombinator.com/item?id=25950685&p=2 https://news.ycombinator.com/item?id=25950685&p=2
- kypro 6y agoFurther info here: https://twitter.com/balajis/status/1354911653582630915 https://twitter.com/balajis/status/1354911653582630915
- Firebrand 6y agoWatching social media frame today as being orchestrated by some shadowy cabal was truly bizarre. Robinhood just didn’t have the capital to clear trades of super volatile stocks. I think people would have understood if they just came out and said so yesterday.
- renewiltord 6y agoThey came out and said they did it to protect users from volatile stocks. I’m sure we can hypothesize but why not just listen to what they say and judge them for it.
- cush 6y agoWelcome to capitalism, friend. Customers should be holding businesses accountable.
- SV_BubbleTime 6y ago> Watching social media frame today as being orchestrated by some shadowy cabal was truly bizarre. Makes me wonder how much of the rest of what social media “directs” and “nudges”. What other high profile events where all of social media happen to agree and line up on are not what they seem? Gell-Mann Amnesia is real.
- smnrchrds 6y agoDid TD Ameritrade, Charles Schwab, and Interactive Brokers face liquidity issues as well?
- _whiteCaps_ 6y agohttps://twitter.com/Wealthsimple/status/1354860658723086338 https://twitter.com/Wealthsimple/status/1354860658723086338 WealthSimple is not restricting trades, but displays warning banners about GME: "GME is considered risky. Traders should expect high volatility. If you do choose to place an order, use a limit order with a set price."
- adrr 6y agoThey should turn off market orders for the stock. Treat it like after hours where volume is limited and stock is volatile.
- llbeansandrice 6y agoI don't know about the others, but TD Ameritrade did restrict trading (maybe just buying as well) but only if you were buying on margin. RH is getting ire because they restricted buying for everyone.
- gmethowaway 6y agoInteractive Brokers blocked buying GME stock in non margin accounts. What I hear from twitter the same was for RH.
- dannyw 6y agoCorrect. If you are in Australia, file a complaint and then escalate to AFCA. This violates the Market Integrity rules which applies to IBKR Australia.
- deleted 6y ago[deleted]
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- worker767424 6y ago> didn’t have the capital to clear trades of super volatile stocks As long as people executing buy orders have enough cash or margin in their account to cover the purchase, how is this a problem?
- dodobirdlord 6y agoWell, the margin in those accounts is specifically Robinhood’s problem.
- gmethowaway 6y agoIf margin is the only problem, why many brokers disallowed buying GME stock on non margin accounts?
- esoterica 6y agoIt's not about the relationship between the end user and the broker, it's about the relationship between the broker and the clearing house. Trades take two days to settle, and the brokerage needs to post collateral with the clearing house to reassure them that they have enough funds to settle the trades. When volatility goes up, clearing houses demand more collateral to allow further trading, which the brokerage might be unwilling or unable to provide. This is independent of whether the end user is using margin.
- skosch 6y agoWell, in a world where users had to have fully funded their accounts before making any orders, the clearinghouse would have nothing to worry about. So it's not exactly independent from whether end users are using margin. It looks like RH let hordes of new users onto the platform and allowed them to put in GME orders before having those users' cash in the bank. Now the clearinghouse sees the volatility, throws up its hands and goes "listen RH, no more of these crazy GME orders from you until you have the cash to pay for them". Understandable – but that should be RH's problem, not that of its users. What's not OK is RH's sledgehammer solution of disabling buying for all users, even those whose accounts are fully funded, not to mention force-selling people's shares against their will. IMHO they deserve all of the anger and lawsuits currently directed at them. (Edit: unless, of course, they are only force-selling stocks that were bought on margin in the first place, and if their T&C let them do that, in which case ¯\_(ツ)_/¯)
- phkahler 6y agoWhat does that even mean? Dont they hold investors cash, and use that to purchase shares when those investors want to buy? Is there another fiction at play here?
- thatguy0900 6y agoNo, robinhood by default opens margin accounts, so they loan you money to buy stocks with. Those were the orders they forced out, as far as I'm aware they never messed with cash accounts beyond not letting them buy.
- dodobirdlord 6y agoRobinhood doesn’t buy and sell stocks, they just run an app. Downstream they have a relationship with Citadel, which does the actual trading. In theory it could have been Citadel that decided to stop allowing these trades, but Citadel has announced that they haven’t done that.
- greenshackle2 6y agoThe available cash in a brokerage account can be a bit of a fiction, in that the brokerage may not literally hold it as cash, they may put it in a low-yield safe investment and keep the interest, and they may let you trade with unsettled funds from stock sales or bank transfers that haven't cleared yet. US stocks have T+2 settlement, when you buy or sell the money and stock are really only exchanged two days later by the clearinghouse. Until that happens, if they let you trade the proceeds immediately, you're kind of trading with a very short term loan that has your "sold" stock as collateral, it's technically not totally risk-free. You can buy with unsettled cash even in a cash account but there are a few rules to follow to avoid violations. In a margin account you may be trading with margin without realizing if you trade frequently and don't pay attention to settlement. Even if you're not trading margin the whole system is kind of running on short-term credit and there are capital requirements. The clearinghouse has to make sure the brokerage can fulfill all its obligations for all the unsettled stuff for the next N days even if it goes under tomorrow. (EDIT: The whole financial system tends to run like this.. you can spend the money from a deposited check long before it has cleared, etc.)
- tootie 6y agoEveryone said the same about reddit and didn't blink when the sub came back in 45 minutes. I think it's also grossly naïve that reddit is even the main player anymore. There's so much after hours trading going on that has to be institutional. DFV made a great call and everyone noticed.
- tayo42 6y agoWhy does it have to be institutional? I made a pre market trade the other day. Figure other regular people can too
- TheAlchemist 6y agoBecause institutional also own >100% of the stock (that sounds silly indeed, but it's the case). See here: https://money.cnn.com/quote/shareholders/shareholders.html?symb=GME&subView=institutional https://money.cnn.com/quote/shareholders/shareholders.html?s...
- cwhiz 6y ago> Robinhood just didn’t have the capital to clear trades of super volatile stocks. This was not their stated reason for shutting down the trades. What is your source for this claim?
- franklampard 6y agoMelvin capital
- adrr 6y agoIt’s in their blog. https://blog.robinhood.com/news/2021/1/28/an-update-on-market-volatility https://blog.robinhood.com/news/2021/1/28/an-update-on-marke...
- cwhiz 6y agoThat is not a source for what OP is saying has happened.
- esoterica 6y ago> As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.
- Miner49er 6y agoIt's not, they don't give any reasons in that blog post. They vaguely hint at things that could be the reason, but they never actually say those are the reason. This is either shady or horrible PR.
- franklampard 6y ago“Just didn’t have the capital to ...” so they screwed millions of investors? How on earth is this legal?
- disgruntledphd2 6y agoIf they are lending you money (which is what margin is), then it's perfectly legal. You don't have a right to be lent money by anyone.
- franklampard 6y agobut cash accounts were all affected
- JumpCrisscross 6y ago> people would have understood if they just came out and said so yesterday Agree. But generally speaking, financial services firms don't like to say "we ran out of money."
- matwood 6y ago> Watching social media frame today as being orchestrated by some shadowy cabal was truly bizarre. Once most of the brokerages started restricting, I assumed the SEC made the call. If it had just been RH, then some backroom deal might have been more plausible, though still unlikely given the regulations.
- Miner49er 6y agoThen why hasn't Robinhood came out and said this like other brokers have? I'm not necessarily trying to be a conspiracy theorist, but they have horrible PR.
- cush 6y agoWho said cabal? There's a basic conflict of interest between Robinhood and Citron. Of course it should be looked into...
- neonate 6y agohttps://archive.is/nfxoK https://archive.is/nfxoK
- kylebenzle 6y agoYou are a hero, thank you!
- deleted 6y ago[deleted]
- JarlUlvi 6y agoIf this actually happened the way that Robinhood is claiming, it is only because they were incredibly short-sighted.
- xwdv 6y agoTomorrow is a big day. Option expirations, Max Pain, forced liquidations. Holy hell.
- Traster 6y agoI suspect this will be lost in the hysterical clamour, but yes, it is in fact true that trading platforms have to worry about systemic risk and their ability to work with certain capital obligations. The idea that this just boils down to some good old boy phoning up RH and asking them to pump GME doesn't stand up to very much scrunity at all. But such is life- the baseless conspiracy is easier to believe if you don't spend time understanding how these companies work.
- franklampard 6y agoMuch of the outrage is caused by the fact that they disabled only BUYING of certain stocks. Systematic risks should be addressed, yes. But a broker should never do such manipulation.
- huffmsa 6y agoDisabling buying on margin would be one thing, but disabling all together is another
- franklampard 6y agoThey did the latter didn’t they?
- fastball 6y agoExactly. I have a RH account with zero margin and was not able to even look at GME in the RH app (i.e. not even see a chart – didn't show up in the search results at all). People who already owned shares were able to sell, but nothing else.
- Kranar 6y agoThey disabled it altogether, cash and margin.
- slg 6y agoDo you honestly think the situation would have been better if they prevented both buying and selling? At least with the current approach people could sell their shares as the price dropped. It would have been much worse in my opinion if people just had to sit and watch as the value of their positions evaporated with no recourse.
- rmason 6y agoThey are also facing a class action lawsuit: https://www.pcmag.com/news/robinhood-faces-class-action-lawsuit-for-blocking-gamestop-stock-buys https://www.pcmag.com/news/robinhood-faces-class-action-laws... Be aware of the risks upfront when doing business with a company when you're not the real customer.
- tootie 6y agoThat will likely get tossed pretty quickly. There's no evidence of wrongdoing.
- colinmhayes 6y agoThe stock went down 40% after the retail brokers stopped letting GME be bought. It also happened to AMC. Is that not evidence?
- 650REDHAIR 6y agoBold claim. There is a relationship between Citadel and RH and a relationship between Melvin and Citadel. I want an investigation.
- itsnot2020 6y agoCitadel Securities LLC (market maker) has a relationship with Robinhood, Citadel LLC (hedge fund) the one with the short doesn't. Read into this what you want.
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- hong_kong 6y agohttps://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html https://www.cnbc.com/2021/01/28/interactive-brokers-restrict... “The broker stands between these customers and the clearing house,” said Peterffy. “So when some option holders make money, the clearing house has to give us the money to give it to our customers, while other option holders, sellers or buyers on their own side lose money we have to collect money from them and give it to the clearing house. If our customers are unable to pay for their loses we have to put up our own money.” Explanation from the CEO of Interactive Brokers, which also limited GME trading.
- kasey_junk 6y agoNote Robinhood clears themselves so the same dynamic applies but is more direct.
- llbeansandrice 6y agoThis makes sense to me in terms of restricting buying on margin. But plenty of people put their own money into RH accounts and were buying stock. I don't see how that's relevant to RH paying a clearing house? I suppose they had a huge influx of new accounts and RH gives you an advance up to like $1000 before the money is actually moved from your bank account and into your brokerage account but I'm still skeptical that this reasonably leads to "not supporting" stocks.
- deleted 6y ago[deleted]
- kahrl 6y agoYou are correct. It's not relevant.
- lovehashbrowns 6y agoBut when you buy a stock, like just straight up purchase it, the cash is already there, on-hand, in your account. There's no Robinhood putting up their own money because YOUR cold hard cash is there, in the RH account. That is used for the purchase. So why stop people from buying the stocks? This answers my question, I think: https://news.ycombinator.com/item?id=25951475 https://news.ycombinator.com/item?id=25951475
- chongli 6y agoRobinhood also told users it may close out some of their positions as it takes steps to reduce account risks. How can this be legal? If someone is holding a large amount of GME stock which they bought at (e.g.) $300 and Robinhood closes out the position below that amount, they're forcing losses on an investor who was specifically holding with the belief that the share prices would go up.
- fnbr 6y agoThey probably have a wild EUA that lets them do whatever they want. Probably also an arbitration clause so users can’t sue.
- kasey_junk 6y agoIt’s not a wild clause for brokerages to be able to close out positions to cover margin trades. It’s bog standard. People may not realize they have a margin account with Robinhood, which is another matter.
- shiftpgdn 6y agoRobin Hood makes it pretty clear when you open a margin account. Not so much when trading in it.
- chrisseaton 6y ago> How can this be legal? I guess the same way that a bank under a run refusing withdrawals is legal.
- toomuchtodo 6y agoIf bought on margin, it’s legal and reasonable depending on how fast risk management is responding. If those were cash purchases they liquidated, Robinhood is in a world of hurt.
- chongli 6y agoThat makes sense. Any position someone bought on margin is subject to being closed out or facing a margin call. Cash purchased positions should be safe. That's just a normal thing we expect for margin accounts though. Is this extra notice being given as a reminder of the terms for margin accounts or are they taking extraordinary action? Hard to say.
- daemonk 6y agoThey could have just completely frozen trades of these volatile stocks then? Instead, they only blocked out buying these stocks and still allowed selling. Did they not really think through the implications of this action?
- dcolkitt 6y agoYou're essentially saying that Robinhood should have forced its users to hold an insanely volatile stock, just to be "fair" to the people who wanted to keep riding a pump and dump.
- HenryKissinger 6y agoAnything that prevents a retail investor from making money is evil or illegal according to Reddit and, sadly, HN. You can make money as a retail investor. Just avoid meme stocks and stick with more stable titles.
- kypro 6y agoThis is what upsets me the most about what's been happening in recent days. There is now a popular narrative that the market is rigged against the little guy, but as a little guy who's been investing for about a decade now I know this couldn't be further from the truth. The only reason this situation with GME happened is because no one person has power to control what investor decide to buy and sell (with this perhaps being one of the few exceptions I've ever come across). I don't really understand where this claim that retail investors can't take the opposite side of a hedgefund's trade is coming from. Hedgefunds that are over-levered go bankrupt all the time because retail investors along with professionals take the other side of the trade. It's worth remember a lot of hedge funds lost money shorting TSLA this last year too and that trade was largely retail driven. I also think a lot of people are being really spiteful. I understand why hedgefunds get a bad rep, especially after all that happened during the GFC, but most hedgefunds are doing honest business. I don't really understand why Melvin Capital deserves to be put out of business and for their employees to lose their jobs because of what some other hedgefunds have done in the past.
- shirakawasuna 6y agoIf the core problem is volatility, then freezing trades would be the natural response. They froze only the 'buy' option on their app. Selling would still go through and they'd still have to process those trades. There would still be movement, it would just be solely in the direction of selling.
- superkuh 6y agoI'm not unsympathetic to the liabilities of the brokerages and the difficult position. But this situation exists because in the US you have to be a rich person to directly interact with the stock market. [edit] Don't pay attention to me below. I'm wrong. See responses. Then the absurd requirements to be an accredited investor that require nearly everyone to use a broker should be lowered. It's only a very small segment of the US population that has a net worth of over 1 million dollars or an income of more than $200k/year. Most accredited investors are not human people at all but instead corporate people. If brokerages are going to act this way then people need to have the rights to bypass them.
- Denvercoder9 6y agoAccredited investors still use brokers to trade on the stock market. Even for them stock ownership isn't transferred magically.
- JumpCrisscross 6y agoThe term "accredited investor" is only meaningful within the scope of unlisted securities. Stocks traded on exchanges are listed securities. "Accredited investors" have nothing to do with public stock exchanges.
- samhld 6y agoThe concept of "accredited investors", itself, is a great data point for why our implementation of capitalism isn't really capitalism. When opportunities are given explicitly to the rich, you don't have a free market. I know that's not 100% relevant but it was therapeutic to write it.
- JumpCrisscross 6y agoThe 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 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 a broker falls down, the clearinghouse liquidates their collateral and makes their counterparty whole. More volatility means more chance the collateral will be insufficient.) In this case, collateral requirements on GME went up. Because of its volatility. So while before Robinhood had to pony up collateral for a few shares of GME for every hundred it traded, it now had to, at close of business, pony up one hundred shares' worth of collateral for every hundred it traded. That creates a cash crunch. One that exacerbates itself with every additional trade in the security. If Robinhood fails to satisfy those collateral calls, they go out of business overnight. Into receivership. 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...
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- samhld 6y agoThanks for spreading the word. The DTCC portion of this sounds like they had a "liquidity problem" in the sense that they were trying to prevent one. The portion about not having a plan for when market makers don't want their action -- and they have to instead pay to use exchanges -- seems like a pretty stupid problem they set themselves up for. Do have this right?
- qaq 6y agoI think one aspect getting overlooked is who lent the stock to the hedge funds? If most of GME is held by robinhood clients I am guessing it would be robinhood ? If the hedge fund goes belly up is robinhood on the hook for stoock they lent out?
- hehehaha 6y agoIt’s owned by institutional holders. I doubt RH and r/wsb traders hold more than 5% even after today.
- stevespang 6y agoDozens of lawsuits filed already against Robinhood Liability exists if a brokerage allows trades by some clients but not others, especially if the one being denied needs access to the market . . Smart attorneys will DUMP MASSIVE DISCOVERY on Robinhood . . .
- balozi 6y agoThis thing is bigger than Robinhood. Watch for the misdirection.
- cccc4all 6y agoThese are very convenient excuses. How come this is the first time these actions had to happen? How convenient that these actions just happen to help out their partners recover $Billions of dollars and cost millions of users $Billions in gains? How convenient that these actions always help out the billionaire vulture short sellers, always? Robinhood didn't just stop trading, which would make sense for these kind of trading issues. They stopped normal users from buying these stocke, while letting them liquidate and sell these stocks. Thereby pushing down price and helping out their billionaire vulture short sellers.
- harshalizee 6y agoRobinhood was set to go IPO in Q1. In the age of every tech IPO going to the moon, they're certainly going to regret not having a decent PR dept. They could have just halted everything, or just allowed trading for non-margin accounts and they could have come out looking like the good guys. I'm not sure if they did anything wrong or by the book, but the current sentiment of them among the millenial/zoomer demographic that was going to buy there stock isn't exactly favorable. Ironically, their stock (when it IPOs) might end up being a great candidate to short into the ground. (Disclaimer : This is not financial advice, just musing about the current Keynisian state of the stock market)
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- mensetmanusman 6y agoThis is a stupid question, but if buying is prevented, who are the sellers selling to?
- notwhereyouare 6y agoseems like buying wasn't really stopped on the hedge fund accounts. So there were some buyers available
- mensetmanusman 6y agoWhy would other hedge funds want to purchase overpriced stocks?
- beervirus 6y agoImagine a brokerage losing money when everyone wants to buy and sell like crazy. Sounds extremely mismanaged.
- dang 6y agoFor pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543 https://news.ycombinator.com/item?id=25933543. Large threads are paginated. If you want to see all the comments you'll need to click through the More links at the bottom, or like this: https://news.ycombinator.com/item?id=25950685&p=2 https://news.ycombinator.com/item?id=25950685&p=2 https://news.ycombinator.com/item?id=25950685&p=3 https://news.ycombinator.com/item?id=25950685&p=3 (and so on)
- djvu9 6y agoJust wanted to remind everybody that Robinhood is not the boogeyman here. The government and its collusion with wall street are.
- obblekk 6y agoThis doesn’t explain why dogecoin was frozen on RH
- spoonjim 6y agoThe funniest thing here is that the leaders of the charge on Reddit are the exact equivalent of the hedge fund guys. gambling with other people’s money for a big payday.
- ahepp 6y agoFT: Robinhood taps banks in rush to restore GameStop trading https://on.ft.com/3t6smeN https://on.ft.com/3t6smeN link is good for 3 paywall bypasses, comment if you really want to read it and you get paywalled >Citadel Securities said it had “not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business”. >Citadel, a hedge fund also owned by Mr Griffin, said it was “not involved in, or responsible for, any retail brokers’ decision to stop trading in any way”. Earlier this week, Citadel provided rescue financing to Melvin Capital, a hedge fund targeted by retail traders on Reddit. I, for one, believe that Citadel Securities the market maker stands to gain more than Citadel the hedge fund ever stood to lose. And I would note that Citadel (the hedge fund) invested in Melvin; presumably to close out their shorts, not double down. Melvin claims to be out of GME, per FT reporting. FT is generally quite reputable, and it is not clear to me whether Melvin lying on this matter would be a crime?
- trollski 6y agoif i have to pay $0.01 for those fuckers' bailout i am going to flip
- loycombinate 6y agoAllow GME buys only with SETTLED cash. Issue solved.
- Triv888 6y agoThe only good thing about Robinhood is I believe that they were among the first to have no trading fees... but now there are many other options, including Schwab (but Schwab had some major reliability issues in the last couple of days).
- hardwaresofton 6y agoFor any still following this story -- u/deepfuckingvalue (aka RoaringKitty on YouTube) has been semi-doxxed by Bloomberg this morning -- he's a 34 year old financial advisor from Massachusetts evidently. wallstreetbets used to be full of people like this, it's way less so now, but it would be silly to think that there aren't some hedge funds in on the buy side of this event, if not to ride the volatility. Active trading desks live and die by volatility -- if the market is not volatile, it is much harder to make money.