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I 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
by Traster 6y ago
I 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.
- franklampard 6y agoBetter for the retail investors? No. For the retail investors, if a broker didn’t foresee systematic risks and cannot clear, the better thing can happen is the broker own up to mistakes and go bankrupt. Bankruptcy is legal and investors understand such risks.
- slg 6y ago>Bankruptcy is legal and investors understand such risks. The type of retail investor that is using RH doesn't understand the bankruptcy process and certainly wouldn't be happy to be stuck in SIPC limbo while the value of their stock plummets. When it comes to what is best for RH users, this seems like it was one of the least bad options among a collection of horrible options that are due to the way RH is managed.
- franklampard 6y ago> The type of retail investor that is using RH doesn't understand the bankruptcy process That's your rationale for manipulating the market? SMH
- ManofPeace 6y agoThe price dropped because there was no buying pressure (speculation of players shorting the stock at the top aside). Disabling the ability to buy in several brokerages removes the price discovery aspect of the system.
- slg 6y agoThe price dropped because it is in an insane bubble at the moment. Whether that drop would have happened today or some other day without RH's actions is unknowable. But if a lesser drop still did happen today and people couldn't sell their positions, that would have been even worse for users.
- tinyhouse 6y agoI have no dog in this. I've stayed away from RH as I always suspected they are shady. However, blocking people also from selling is even worse imho. If the exchange does it then that's OK because trading halts for everyone. But if RH does it, people can still sell on other platforms. I would be very upset if my trader is blocking me from selling. I do understand that disabling buying caused the stock to tank, but I think it would've happened even if they disabled both. Was that their way to manipulate the stock price? idk but it makes sense.
- samhld 6y agoI'm confused why you're bringing up "blocking people from selling". Has that ever happened? It certainly isn't happening here. Edit: I'm guessing it's because the above comment said "only BUYING". I think that was a distinction from blocking both buying AND selling. If you block only one, it forces the market.
- abnry 6y agoSomeone somewhere has to still be able to buy if RH is still allowing people to sell. It's just not the people on RH.
- cmdli 6y agoJust to be clear here, they are restricting opening new positions. If you are short on GME, you are allowed to buy in order to close out your position. However, most people are long, so they only have the option to sell.
- deleted 6y ago[deleted]
- stainforth 6y agoI'd also like a reporting of when they force closed some of their customers positions - did they do it selectively at a time when GME was lowest? From the examples I've seen it was later in the day. If they were already taking action before market open, then why didn't they also close those accounts then?
- ericmay 6y agoYou can’t pause the game for the player who is winning and not both players.
- tartoran 6y agoThey actually tilted the table so all the chips slide away from the winner towards the looser
- philwelch 6y agoThe house always wins in the long run.
- ALittleLight 6y agoYeah, but the house doesn't usually interrupt the poker game to tell one player he's only allowed to call or fold and no longer bet.
- fastball 6y agoI don't think your take stands up to very much scrutiny at all. If this is about people trading on RH on margin, then just... stop allowing people to use margin to trade GME etc. "If you wanna buy GME you gotta have the cash in your account to cover it". Problem solved and you don't need to prevent people from buying a stock they want to buy. RH users are the product, not the customer. Why in the world would you expect RH to act in the interest of their users over the people that actually pay them, e.g. market makers like Citadel?
- Traster 6y agoThis isn't just about margin, absolutely, this is about all sorts of order flow agreements, credit lines and clearing agreements that break down when your entire customer base has decided they all want to go long the same incredibly volatile stock at the same time. >"If you wanna buy GME you gotta have the cash in your account to cover it". That's great, but that isn't the only relationship in this agreement, RH has agreements with its brokers about capital requirements. It's fairly likely that the attitude of "You need to have cash on hand for everything" basically means "You're done". That's the entire point of these risk management strategies - you are covered for what might reasonably happen so that you're making efficient use of capital.
- andy_ppp 6y agoIf this is true Robinhood should be explaining this to their customers. The silence for me is deafening and indicative that something more sinister is happening.
- jonp888 6y agoThey have. There is no silence. They made a blog post saying pretty much exactly this: 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... - they had capital and deposit obligations which they couldn't meet due to volatility, but having sorted this out they can resume trding.
- A12-B 6y ago'Systemic risk' and 'Capital obligations' are crafted by the wealthy specifically to prevent small players from having as easy a time gaming the market as they do. No one is shouting conspiracy because they don't need to; everything everyone is mad about is happening in broad daylight.
- deleted 6y ago[deleted]
- franklampard 6y agoAnd they can declare bankruptcy if they failed to prevent the system risks. But they instead chose to harm their customers. Robinhood deserves all the hell that it raised
- croes 6y agoDoesn't Robinhood work with Citadel, an investor of Melvin Capital Management?
- kart23 6y agoRobinhood is only a clearing broker that works with executing brokers to complete transactions. Citadel is an example of an executing broker. https://www.benzinga.com/fintech/18/10/12481341/why-and-how-did-robinhood-decide-to-clear-its-own-trades https://www.benzinga.com/fintech/18/10/12481341/why-and-how-...
- deleted 6y ago[deleted]
- JumpCrisscross 6y ago> Robinhood is only a clearing broker that works with executing brokers to complete transactions. Citadel is an example of an executing broker. What? No. With respect to clearing, transferring stock from the seller to the buyer, there are clearing brokers and introducing brokers. Clearing brokers have a direct line to the clearinghouse. Robinhood is one of these. Introducing brokers use a clearing broker to clear. With respect to execution, matching buyers and sellers, you have brokers (who represent clients) and market makers (who bet their own capital). Robinhood is a broker. It sells its order flow to market makers, of which Citadel Securities is a major one.
- jonny_eh 6y agoBut doesn't disabling buying cause less money to flow towards them?
- vsareto 6y ago>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. It's entirely possible, but do you really think that a conspiracy couldn't be possible in the financial world with all that's happened for the past 20 years?
- bargl 6y agoI'm going to start spreading this around. It's a comment by someone else who points to an interview of the WeBull CEO and why they had issues. It's pretty clear that this is a process issue, not necessarily a RobinHood is evil issue. https://news.ycombinator.com/item?id=25950191 https://news.ycombinator.com/item?id=25950191 Edit: I didn't know before listening to this how much was going on behind the scenes for every stock trade. It reminds me of what it takes to buy a house.
- Miner49er 6y agoRobinhood hasn't said this is what happened to them though. If they had just said this morning, right off the bat, "our clearing house is no longer allowing new positions on these stocks" people would have been pissed, sure, but not as much, and not completely at RH. Even now, they haven't come out and said anything directly, they just keep making vague references to having "obligations" and "requirements".
- bargl 6y ago100% agree. I mentioned somewhere else that their Press Release was crap. If they'd explained like people reading were adults, (maybe they did and I didn't see it) then people would have been a lot less mad. It's just context for the conversation I was missing, it doesn't mean they are completely blameless, and I support a class action lawsuit. I just appreciate a fuller context for myself and figured others might as well.
- mike00632 6y agoRobinhood is an app made for children, complete with gold stars and achievement celebration noises. What's this about interacting with adults?
- svnt 6y agoYou all don’t recognize a revisionist account when you see one. You all don’t realize that the only firms still market making in retail options are hedge funds with GME short positions. You’re falling for the reasonable technical explanation. The “clearing house” they are talking about is Citadel. They hold (more held, probably) large GME shorts among others, and fund other hedge funds that also held those shorts.
- antoniuschan99 6y agoA lot of other brokerages stopped allowing people to buy as well.
- adrr 6y agoIB is the only other one I knows. Last time I checked I can buy on E*TRADE or Ameritrade.
- Miner49er 6y agoHere's a list compiled by a redditor: https://old.reddit.com/r/wallstreetbets/comments/l72tfu/robinhood_alternatives_upvote_for_visibility/?ref=share&ref_source=link https://old.reddit.com/r/wallstreetbets/comments/l72tfu/robi...
- gmethowaway 6y agoCan you please elaborate on systematic risk in the light of not allowing to buy GME stock (not options) without margin (no money lended from broker), what many brokers did today.
- tartoran 6y agoNo, I'm afraid not. But the answer would sound very sophisticated so you can't really discern if it's conspiracy or not.
- vincentmarle 6y agoThey didn't mention any of this in their first announcement though, instead it was some patronizing PR fluff that they "truly believe everyone should have access to financial markets" while at the same time mentioning that they were going to restrict access. Maybe if they didn't treat everyone as little kids, they wouldn't get as big of a backlash? It was only until after the markets closed that Vlad Tenev really explained what happened: https://twitter.com/vladtenev/status/1354900958942175233 https://twitter.com/vladtenev/status/1354900958942175233
- devin 6y agoCheers. I started in the baseless conspiracy camp and learned a lot today about how all of this works. I would recommend others do the same. Spoiler: it’s pretty boring, and there are countless opportunities to misunderstand the relationships between all of the entities involved. What happened today made sense. It sucked, but it made sense.
- dalbasal 6y ago>I suspect this will be lost in the hysterical clamour... systemic risk... capital obligations. the baseless conspiracy... Baseless?! ...That's it! Prepare for hysterical clamouring. Both the hedge funds who wrote the put contracts and RH took positions nice, high, steady returns and long tail risk. The press is reporting Melvin Capital wrote put options with a face value circa $55m, for example. The long tail risk materialized. Damage is several $bn. It seems like systemic risk means risk to heads-I-win-tails-you-lose games. This is why the hysteria. This whole thing is a symbol of a rigged system, with the typical patterns of insiders. 9 times out of 10, they win. 1 time out of 10 they pull the fire alarm. Insiders, from the CEO of the NASDAQ to whoever makes the clearing house rules have come out swiftly and in force to suspend norms and call a literal "all bets are off." Closing buys, but not sells. Liquidating positions. How is this not a rigged game. It is enraging to hear "be reasonable, we all have to be responsible" from these people.
- sroussey 6y agoI read that the CEO of NASDAQ suggested a trading halt (for everyone, buy and sell) and that articles suggesting otherwise were later corrected from the poor reporting in the rush to get a scoop.
- threedots 6y agoThe fact you're confusing option types is not helping your credibility. Writing put options is a bullish move. Melvin may have been writing CALL options (I doubt it to be honest but maybe).
- dalbasal 6y agoMelvin had $55 million worth of put options on GameStop, which are the opposite of calls. Puts assume the share price of a stock will go down and give their owners the option to sell a stock at a certain price. Melvin assumed GameStop’s stock would fall, and bought puts allowing Melvin to sell GameStop’s stocks above the market price, netting Melvin a profit. https://www.esquire.com/news-politics/a35339535/game-stop-stock-short-squeeze-explained/ https://www.esquire.com/news-politics/a35339535/game-stop-st...
- dmix 6y agoAll of these internet driven “revolutions”, including occupy, always end up being way more underwhelming then their hypemen hope. Maybe a few power structures will adapt but rarely doesn’t anything change for the better for the “common” man. Usually it’s just more restrictions. While LARPers have their fun. The only winners are the ones in it “for the lulz” as they say.
- deleted 6y ago[deleted]
- happytoexplain 6y agoWhy call it "hysterical clamor" if you have any intention of having a real discussion?
- protastus 6y agoIt strikes me as awfully naive to simultaneously: * accept RH's statements with no evidence and zero knowledge of their reserves and cash flow. * ignore RH's conflict of interest. Specifically, that RH sells user trading data and that Citadel, which has a huge short position in GME, is a major customer of the data.
- streetcat1 6y agoRight. This is a run on Robinhood. It has nothing to do with GME Somebody (another hedge funds) found a flaw in the way RH is operating.