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Could you explain what the problem would be then? What exposure would Robinhood and their credit provider have to a situation where a stock collapses that is be

Could you explain what the problem would be then? What exposure would Robinhood and their credit provider have to a situation where a stock collapses that is being held long and not on margin by their clients? The client would definitely no longer be able to do a sell order that will get them any money, but what difference does that make to Robinhood?

imladyboy 6y ago
I'm not an expert, but based on this link[0] from another comment section, a similar firm's CEO is saying the their clearing firm stopped the trades due to the costs > Our clearing firm gave us a call and said we're going to have to stop allowing new opening positions... > there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days... > our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. [0] https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict...
- deleted 6y ago
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refulgentis 6y ago
Think of it more as systemic risk - I would say the general logic error I'm seeing on HN is assuming all assets on deposit are firewalled, have completely uncorrelated risks, are attributable to exactly one type of funding, either margin or deposit, and information is instantly communicated - in practice these are big messy orgs with big messy books, and the lender is looking at robinhood saying "you're asking for a historically high line of credit because you're on an exponential growth curve for users, whose assets are based on 1, generously 3, meme stocks? Let's try to figure something out here, we don't want you to shut down, but we need to mitigate risk" People are expecting more a scenario in which clients stocks are neatly divided in two piles based on an unrelated criteria, i.e. if they are attributable to margin, or whatever assets you have on deposit. Additionally, the process of having margin is itself like having a credit line - AmEx simply doesn't have the systems or procedure to lower your credit limit because Tickle Me Elmo speculation is at a all time high over the last 72 hours, and it sees you're purchasing tickle me elmos, getting assigned a credit limit is a function of your credit score, and amex isn't tracking line item level purchases

imladyboy 6y ago

I'm not an expert, but based on this link[0] from another comment section, a similar firm's CEO is saying the their clearing firm stopped the trades due to the costs > Our clearing firm gave us a call and said we're going to have to stop allowing new opening positions... > there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days... > our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. [0] https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict...

deleted 6y ago
[deleted]

refulgentis 6y ago

Think of it more as systemic risk - I would say the general logic error I'm seeing on HN is assuming all assets on deposit are firewalled, have completely uncorrelated risks, are attributable to exactly one type of funding, either margin or deposit, and information is instantly communicated - in practice these are big messy orgs with big messy books, and the lender is looking at robinhood saying "you're asking for a historically high line of credit because you're on an exponential growth curve for users, whose assets are based on 1, generously 3, meme stocks? Let's try to figure something out here, we don't want you to shut down, but we need to mitigate risk" People are expecting more a scenario in which clients stocks are neatly divided in two piles based on an unrelated criteria, i.e. if they are attributable to margin, or whatever assets you have on deposit. Additionally, the process of having margin is itself like having a credit line - AmEx simply doesn't have the systems or procedure to lower your credit limit because Tickle Me Elmo speculation is at a all time high over the last 72 hours, and it sees you're purchasing tickle me elmos, getting assigned a credit limit is a function of your credit score, and amex isn't tracking line item level purchases