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Thanks 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 port
by samhld 6y ago
Thanks 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?
- deleted 6y ago[deleted]
- liuliu 6y agoI don't think the comparison to liquidity problem is accurate. The brokers cannot mint credit out of thin air if they don't allow margins. Hence, the cash in the broker is backed 1:1, and they won't have liquidation issues. If Robinhood cannot fulfill these trades on margins, that is totally fine, they can halt on the margin trades if there are "liquidation issues". For all-cash trade, there shouldn't be any liquidity issues otherwise it calls into question how they manage their deposit.
- saddlerustle 6y agoEvery RH trade is on credit, because it allows trading before ACH deposits settle and allows withdrawing or trading into other positions before trades settle.
- liuliu 6y agoThanks, I think that perfectly answers: "it calls into question how they manage their deposit." this part :)
- bdonlan 6y agoThe liquidity issues arise in part when trades occur on unsettled securities. Consider what happens if someone buys a stock, then turns around and sells it the same day to another counterparty. The broker has an IOU from one party for the stock, and has issued an IOU to another party. Two days layer, if the first party fails to deliver (oops, a short seller couldn't find stock to cover their short!), the broker's on the hook, at least in the short term.