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Robinhood, in Need of Cash, Raises $1B from Its Investors

641 points by coloneltcb 6y ago

Proven 6y ago
O'rly? Earlier this week socialists were claiming the RH owners were getting rich by front-running their blue collar users. It seems this enrichment process has yet to be refined.
AndrewBissell 6y ago
So they put a halt on opening new positions not to protect their customers, but because it was straining their own liquidity position. They're certainly not the first broker to choose lying to the public over confessing to liquidity issues -- although I would say they're much more likely to weather this storm than their predecessors.
- handmodel 6y ago
  I mean - it has been revealed to be a shitty broker but I'm not sure if those two things are that different? If this afternoon Robinhood didn't have 1B secured how could it have taken the orders without violating every trading regulation in the book? They would either have had to lie to the people they were buying from or lie to their clients.
  - stretchcat 6y ago
    Or they could just come clean and tell the truth..
    - etchalon 6y ago
      They sent an email yesterday: "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."
      - jzoch 6y ago
        and at the same time their own CEO made statements that they dont have liquidity issues. They also sent that communication well after the market closed. They should have sent a much more detailed explanation right at market open thursday
        vkou 6y ago
        It can be argued that they don't have liquidity issues - they have collateral deposit issues (Due to the massive user growth, and the delay between when an ACH transfer to Robin Hood clears the banking system (a few days), and the time they permit you to trade on your account (less than a few days))
        exclusiv 6y ago
        They blocked regular buys though. If you have money in your RH account, this is a big problem.
        vkou 6y ago
        As I understand it, even for executing regular buys, the settlement houses require RH to maintain a large deposit of dollars as collateral. This collateral requirement goes up when a stock becomes heavily traded, or more volatile. Because of the insane volume & volatility of GME, RH's cushion of collateral was exhausted (And they've now replenished it, by borrowing & raising money.) The reason that sells were permitted to execute was because each sell by one of their users reduces the collateral requirements in their settlement accounts. (So the settlement houses allowed sell orders to go through.) The tl;dr is - when you are trading through a discount broker, you get a discount service. Serious brokerages, that are used by institutional investors don't have these problems, but they also charge a lot more for their services.
        freeone3000 6y ago
        My serious money is invested through Morgan Stanley. They have institutional investment services I do not qualify for, but I'm on their registered investor account, and it's usually $7 to $15 for simple trades. It's not that much more if you're actually planning on executing in volume.
  - Dma54rhs 6y ago
    They should have disabled at some point new sign ups maybe? Why they didn't do that instead, probably tons of people first time to sign up with them to join the banter.
- mdoms 6y ago
  If you believe this you are legitimately the dumbest guy on this website.
rajacombinator 6y ago
Robinhood has been known to be sham for a very long time. Anyone with money there is willfully ignorant.
- Triv888 6y ago
  yes... https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321
  - vmception 6y ago
    > Without admitting or denying the SEC’s findings, Robinhood agreed to a cease-and-desist order prohibiting it from violating the antifraud provisions of the Securities Act of 1933 and the recordkeeping provisions of the Securities Exchange Act of 1934, censuring it, and requiring it to pay a $65 million civil penalty. A) SEC should remove the option of "without admitting or denying" this time B) The CEO is choosing to speak in double speak because anything he says will violate the antifraud provisions after already being slapped for violating the antifraud provisions. (isn't the point of a law for the punishment to be a little more than agreeing not the violate the law? circular civil suit that should have been referred to the DOJ) C) Refer current actions to the DOJ and this prior settlement that was violated.
    - ivalm 6y ago
      I mean the fraud here is fairly eh. They gave a smaller price improvement (but still beat nbbo) relative to other discount brokerages. The lie was that they delivered same great price as other discount brokerages. However, most of their clients were small and still net-saved money by not paying the flat fee. The practice ended in 2018.
      - vmception 6y ago
        yeah they lied about revenue sources and why they were able to offer low prices. would have been better if they just shut up and didn't try that hook.
n_io 6y ago
The narrative seems to fit a little too comfortably...
- MattGaiser 6y ago
  That is just called something being true in many cases.
  - n_io 6y ago
    Example?
tempsy 6y ago
The CEO just gave 3 interviews tonight and denied this was at all related to liquidity issues for the company in all 3 when pressed. Terrible look.
- n_io 6y ago
  I’d imagine liquidity issues are the least of their concerns right now. At least, they would be to me.
  - Clewza313 6y ago
    Why? For a brokerage it's an existential concern. And they can't publicly admit it's a problem either, because that would likely trigger the brokerage equivalent of a bank run. (Of course, odds are they're already grappling with that as well.)
    - bredren 6y ago
      I had a neutral to negative view toward this product before today. In part due to the product’s UX having to change after a customer killed themselves and cited the app in their suicide note. [1] I noticed that before but bad stuff happens, I had not heard of further issues and it was likely a series of contributing factors. That said, this bind broke the entire concept of the branding of the product. I’d never install this thing now. If they have broken the brand and lost trust of users, no amount of short or medium term liquidity will save the company. [1] https://news.ycombinator.com/item?id=23578794 https://news.ycombinator.com/item?id=23578794 https://suicidepreventionlifeline.org/ https://suicidepreventionlifeline.org/
      - Clewza313 6y ago
        They've lost the trust of people YOLOing on meme stonks. I'm sure it's a noisy part of their userbase, but still only a part. It would be interesting to see stats on how many people use RH for long-term investments (buy and hold, DCA, etc), and how many use it as a form of gambling (day trading, leveraged options etc).
sdan 6y ago
One interesting thing that happened today as I was selling my AMC stock/options is that they executed lightning quick. Normally Robinhood (especially this morning) takes time to sell these options, yet they were immediately picked up. Would be crazy to think short sellers were buying up all the sell side stocks/options while retail were panic selling, to hedge against their shorts.
- kegbuna 6y ago
  This feels so likely when only retail investors were banned from buying. Who exactly is buying up all these shares then? Fingers only seem to point in one direction.
throwawaysea 6y ago
So much for the conspiracy theory about Robinhood changing policies to favor institutional traders over retail investors. Speculation is healthy but I am surprised to see so many educated people fall for social media fear mongering to the point that they decided to drive down Robinhood’s app reviews. Many of my friends who ate up all the outrage are the same people who laughed at QAnon conspiracy theorists, but here they are drinking the same koolaid.
- MattGaiser 6y ago
  Whenever we dislike or mistrust someone, people tend to overattribute that someone's failings or inconvenient actions to malice.
- barbecue_sauce 6y ago
  This is nowhere near the same koolaid.
- julienreszka 6y ago
  >Speculation is healthy I've never seen somebody say speculation is healthy but rather the opposite. Care to elaborate?
  - throwawaysea 6y ago
    What I meant was that speculation and challenging the existing narrative plays a role in seeking the truth. So it has value and can be healthy. But it has to be treated for what it is - speculation. In this case, the actions of brokers should be investigated, and regulatory requirements should be scrutinized. But taking speculation as a foregone conclusion and resorting to an extreme reaction as such, is not healthy.
    - boc 6y ago
      It's not an extreme reaction to see a company like Robinhood bending to the will of its real customers, aka Citadel, and concluding that they were both running out of liquid money because they allow instant trading for new users AND that they protected their customers from getting wiped out by limiting the ability of retail investors to buy GME. Billions of dollars were on the line.
ajsharp 6y ago
"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation." Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line. I watched the CEO on CNN tonight, and while I found him pretty difficult to watch, this is a very difficult position to be in. If you admit on TV that your company is experiencing liquidity issues -- even if temporary in nature such as with clearing custodianship requirements -- you run the risk of triggering a greater panic through customer withdrawals/redemptions. This could turn into a run on the brokerage pretty quickly, and probably already has in some measure, especially after a day of massively lost customer trust. He certainly didn't help it by going on TV and lying about their liquidity issues. They probably would've been better off by issuing a statement and keeping him off TV.
- peytn 6y ago
  I’m not keeping my money with a financial institution that lies to me. End of story. Transfer initiated on my cash, and I’ll deal with moving stocks in the morning.
  - MattGaiser 6y ago
    Would you have kept it with a near insolvent one? I suspect they lost you as a customer either way.
    - killaken2000 6y ago
      >I suspect they lost you as a customer either way. yes
    - peytn 6y ago
      They’ve had a number of technical issues over the past year, and I’ve given them the benefit of the doubt. This is the last straw for me personally.
anticristi 6y ago
Dear Hollywood, Please make a movie out of this.
- MattGaiser 6y ago
  It all happened remotely, so they could make it now while we are socially distancing.
- jansan 6y ago
  The Squeezed Short Edit: If you haven't watched "The Big Short" yet, watch it! Tonight!
  - virgilp 6y ago
    WSB proposed "the retarded short" (they affectionately call themselves retards)
    - mnsc 6y ago
      I read something like "The dogs on main street" and thought it was funny.
    - enw 6y ago
      Honestly I’m so happy there’s a “mainstream” place on the Internet where people use the terms retarded and autistic affectionately. It feels like a breath of fresh air next to the language police of everywhere else.
      - jansan 6y ago
        Rick: Here, your sister's boss gave me a microscope that would have made me retarded. Morty: Ooh, oh boy Rick, I don' think you are allowed to say that word, you know. Rick: Morty, I'm not disparaging the differently abled. I'm stating the fact that if I'd used this microscope it would have made me mentally retarded. Morty: Yeah, but I don't think it's about logic, Rick. I, I think the word has just become a symbolic issue for powerful groups that feel like they're doing the right thing. Rick: Well, that's retarded.
dmichulke 6y ago
Not sure I understand: High volume causes sudden operating expenses up to a billion? Like, they're launching more EC2 instances? Or is that because they suffer from slippage? And if so, why don't they adjust the spreads? And if it's slippage, why would they still allow selling but not buying? Color me skeptic, but this makes no sense. For now I believe they just come up with some story to mask their obvious, IMO criminal, market manipulation by being a victim themselves. The billion is probably for the lawsuits. Can someone with a deeper knowledge chime in as to what could have happened so that it fits their narrative?
- viktorcode 6y ago
  Bloomberg explains the reason being the transactions clearance premium, which was increased due to the stocks volatility. https://www.bloomberg.com/news/articles/2021-01-29/for-robinhood-a-dash-for-cash-after-traders-took-on-wall-street https://www.bloomberg.com/news/articles/2021-01-29/for-robin...
- shcheklein 6y ago
  I think this is a good thread that answers some of those questions - https://news.ycombinator.com/item?id=25951475 https://news.ycombinator.com/item?id=25951475 . Also curious if there were other ways though.
- skybrian 6y ago
  As I understand it, stock trades take days to settle and the brokerage is on the hook if the customer doesn't pay for some reason. When the market is so volatile, Robinhood's trading partners demand more collateral.
  - astrange 6y ago
    It’s NSCC who demands it, the central clearinghouse for all these trades.
    - qeternity 6y ago
      DTCC
sverhagen 6y ago
Is it just me, or did that article end... weird? Like, scrolling more, expecting it to continue. I'm sure we've been conditioned to such articles having a typical arc, that this one... didn't?
- ruph123 6y ago
  Honestly the pacing and structure of NYT articles is so weird. Sometimes I read an article and after a few well structured paragraphs it seems that they just add random additional info, go down rabbit holes and just end abruptly. As if your grandmother wants to tell you a story and weaves in random info of every participant’s relation to your family.
  - PLenz 6y ago
    NYT writes for the Newspaper - and that means column inches. Articles get a space on the paper and are written so that they can be cut at different places to fit that space without major edits.
    - ruph123 6y ago
      Interesting point. But I have never experienced this with other newspapers who publish the traditional articles online. And the NYT should have a higher quality than most.
- ricardobayes 6y ago
  Well the story is still developing.
jariel 6y ago
Robin Hood is the real life Pied Piper - people think they are changing the world but really they're leading people around in circles.
latchkey 6y ago
Previous relevant comment https://news.ycombinator.com/item?id=25951475 https://news.ycombinator.com/item?id=25951475
jnord 6y ago
https://archive.is/FxNUg https://archive.is/FxNUg
mcphilip 6y ago
I get that the settlement plumbing constraints led to stock halts, but still trying to figure out why $DOGE stopped being tradable a few hours ago* Edit, removed some tin foil. *I don’t use RH so it could be back by the time you read this comment.
Xxplosive 6y ago
I wonder if Robinhood is preparing for the possibility that its margin book gets blown up when GME inevitably crashes. Crashing price creates cascading margin calls and they can't liquidate their customers' positions fast enough and end up having to cover their losses, rendering them insolvent. Sequoia, thinking that the fundamentals of the company are still solid long term and that they can wash their hands of this in an IPO in the near future, extends them a lifeline at absolutely brutal terms.
- pishpash 6y ago
  Did their customers all buy on margin?
  - jeremycarter 6y ago
    I believe you can also increase your leverage. https://learn.robinhood.com/articles/4UWpxUy5G0KNDSbcMRs6WE/what-is-leverage/ https://learn.robinhood.com/articles/4UWpxUy5G0KNDSbcMRs6WE/...
- ccmcarey 6y ago
  RH are closing out some margin calls to decrease the risk of this happening afaik.
- Tenoke 6y ago
  They already liquidated everything on margin yesterday without giving users any choice or warning. It was part of what caused the drop in combination with the no buying.
kangaroozach 6y ago
Prediction: Robinhood loses class action and is bought by Schwab for pennies after founders plea bargain for 3 months prison and $20M in fine each and disappear into the ether like Adam Neumann.
- fakedang 6y ago
  That would actually become antitrust at that point.
- avlewis 6y ago
  After today, Id love to see RH get picked up for pennies on the dollar by Schwab treating it as a trade in at a Gamestop.
- KingMachiavelli 6y ago
  I would actually love if some actually reputable brokerage bought Robinhood and just offered it as an (optional) interface to their current trading platform. It's no doubt that part of Robinhood's success is that the UI is much better than a lot of current trading platforms.
loycombinate 6y ago
So, every broker is on margin with DDTC, they don’t have to have 100pct cash for the dollar amount of the buy orders they send to DDTC, as long as they will have the cash in 2 day. Some brokers like fidelity have hoards of 401k money and more likely to have 100pct cash for their orders. Trading brokers like IBKR RH keeps the minimum possible amount of cash with DDTC, and their automated systems adjusted up the minimum. This is more or less like the futures market, except futures trades settle at end of day (when CME closes for an hour at 5pm, and next day starts at 6pm lol) and DDTC is the equivalent of CME Who’s irresponsible here? DDTC for their lax cash requirements? Individual brokers that only keeps the minimum required cash? Futures cash requires 10pct or less, but no futures trader would only keep that much in their account, unless they don’t mind being wiped out and liquidated at end of day settlement (and then deposit more money the next day to trade again). Brokers cannot risk being wiped out at all.
- deleted 6y ago
  [deleted]
- pishpash 6y ago
  Doesn't regular Robinhood require settled cash to trade? Edit: Nope, looks like Robinhood "Instant" is now the default, margin account, but still limited to $1000 per account: https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou...
  - loycombinate 6y ago
    1000 x13 millions users...
  - ummonk 6y ago
    I think it doesn't matter, as they can't use the client's cash on it until the stock is delivered at the end of the T+2 settlement period.
  - MrMan 6y ago
    This is about settlement on the back end.
beaker52 6y ago
Why are there so many HN posts about Robinhood right now? I've seen 3-4 posts in the past 24 hours and it seems like every comment thread I read also mentions Robinhood in some respect. It feels like HN is in the middle of an invasion by people trying to draw attention to it, but there could be a coincidence? Is it just the buzz around this GameStop action?
- lovecg 6y ago
  My guess is that it’s the simplest explanation: lots of people that frequent HN are invested in the story, both figuratively and literally.
- Leherenn 6y ago
  It is, as far as I know, an unprecedented event with potentially far reaching consequences, not matter how it ends up. A huge market manipulation by a massive amount of retail traders, enabled by Robinhood and similar brokers, that has the potential to cause a lot of established players billions in losses. How can and will the SEC react to this market manipulation; it seems unlikely they can pursue the millions of retail traders individually, so can we expect some new regulations instead? Can companies like RH exist in the same form in the future? The fact they stopped people from buying stocks may or may not have been legal, but it certainly distorted the action price. Again, I think this is pretty unprecedented, at least on this scale, so the financial landscape after all of this settle down might be significantly altered. Finally, if the short squeeze happens, what will be the consequences? Are we in for another huge financial crisis?
jcpham2 6y ago
Liquidated RH assets in 2020 and parked it in another app. Glad I did that!
29athrowaway 6y ago
To understand why this is happening, you need to understand the person that started it all: u/deepfuckingvalue https://www.reddit.com/user/deepfuckingvalue https://www.reddit.com/user/deepfuckingvalue He posted updates regularly of his positions. Scroll all the way down and see how much money he made over time. As he started becoming more successful, more and more people wanted to replicate his success, eventually creating the movement that you hear about today. He takes pride on holding no matter what. Spoiler alert: he went from ~100k to 33m USD.
- kzrdude 6y ago
  Most interestingly, he's at $14m cash after this week by selling a fraction. Looks good. Like any sane person, some gains are secured in actual money (hopefully he can move that to an insured account or investment if possible(?))
- kklisura 6y ago
  I read somewhere that u/deepfuckingvalue is this guy[0], but can't confirm it. [0] https://www.youtube.com/watch?v=GZTr1-Gp74U&ab_channel=RoaringKitty https://www.youtube.com/watch?v=GZTr1-Gp74U&ab_channel=Roari...
  - 29athrowaway 6y ago
    That's very possible. https://www.reddit.com/r/wallstreetbets/comments/kk0g0f/gme_yolo_christmas_update_dec_25_2020/ https://www.reddit.com/r/wallstreetbets/comments/kk0g0f/gme_...
habosa 6y ago
Is it just me or is the involvement of VCs here really strange? If Robinhood was anything like a traditional broker (or bank/broker combination) Venture Capital firms would not have been anywhere on the list of places to get emergency money. Although I'm glad that RH has driven the price of trading down for everyone, this is one more reason why most people should keep their money with a more boring financial institution. Reminds me of when RH launched a "checking" account and claimed it had deposit insurance and then in about one day regulators said "absolutely no it does not": https://www.forbes.com/sites/ronshevlin/2019/01/02/the-robinhood-checking-account-was-doomed-to-fail/ https://www.forbes.com/sites/ronshevlin/2019/01/02/the-robin...
- tuna-piano 6y ago
  My first reaction to any news from a large company that people question the legality of is "I'm sure they have a team of highly qualified lawyers who signed off on this plan." But then I remembered about the RH checking account that clearly wasn't approved...
- bombcar 6y ago
  Most "real" brokerages can get access to billions if not trillions of cash for overnight/three days for settlement purposes. They say WallStreetBets is "4chan found a bloomberg terminal" - Robinhood is Silicon Valley masquerading as a real broker; perhaps even the Juicero thereof. I only have a small amount of play money there, and I continue to draw it down. TD Ameritrade and Vanguard serve as my real brokers. Side note: I kinda wonder what Bogle would have to say about all this if he were still alive; probably would have killed him.
  - MrMan 6y ago
    I would never use a brokerage started by SV hucksters
  - sumedh 6y ago
    > I kinda wonder what Bogle would have to say about all this if he were still alive; The next best thing is Warren Buffett, has he said anything on this?
secondcoming 6y ago
If a brokerage is having issues like this wouldn't it have been better for them to notify the exchanges who would decide whether to completely halt trading or not? Crippling half the order book just can't be right.
cced 6y ago
I don’t understand how all of a sudden the shift was made onto the insolvency of RH and that the discussion is less about the original conditions that led up to this. I just finished watching a video from Louis Rossmann [1] as well as one from Bruce Fenton [2]. In his video, Rossmann covers the technicalities and systems behind actually __making__ a trade with an app like RH. The videos were very informative and I learned quite a lot. With the exception of his recent interviews, it isn’t exactly clear what Robinhood was supposed to do differently. If my understanding is correct, clearing houses required more money up front to perform trades - RH didn’t have it so they stopped the trades unidirectionally. People got upset that they couldn’t buy but could sell which made it seem like RH wanted to manipulate the price - but isn’t it better than the alternative, the inability to both sell and buy would seem to me worse than what was done. Imagine them closing both and preventing people from selling if a crash occurs. The discussion would simply be « Robinhood stole our gains and wouldn’t let us move our funds ». Now, should it be the case that more money is required up front, intuitively it makes sense, I mean, who is supposed to front the bill on those 5000% returns? The hedge fund that just went bankrupt? Where exactly does this money come from? Isn’t RH just trying to play within the realities of the current system? Genuinely curious. [1]: https://m.youtube.com/watch?v=MAqxQe0l4g0&feature=youtu.be https://m.youtube.com/watch?v=MAqxQe0l4g0&feature=youtu.be [2]: https://m.youtube.com/watch?v=RQTC5f_VR9I&feature=youtu.be https://m.youtube.com/watch?v=RQTC5f_VR9I&feature=youtu.be
- prohobo 6y ago
  To be honest, it doesn't really matter. This isn't about whether Robinhood technically must or must not do what they're doing, but that the system is setup in such a way that all these claims of "supporting the people" are fundamentally 100% bullshit. Robinhood tanked their credibility by letting the mask slip and people are on that like hyenas because of the irony. Really though, the focus on them is a distraction from the much larger slip by the entire financial system.
  - cced 6y ago
    > Really though, the focus on them is a distraction from the much larger slip by the entire financial system. Exactly. I also watched the recent CNBC interview with Chamath Palihapitiya [1]. I would like to it, but CNBC keeps taking it down. In any case, the host really doesn’t seem like he’s there to « get to the bottom of things or to understand » but to push the idea that the problem is anything other than the preconditions that led up to this. Chamath was spot on. [1]: CNBC Chamath Palihapitiya Interview January 27th, 2021
deleted 6y ago
[deleted]
abluecloud 6y ago
Can anyone answer me this question: if they needed to cover themselves from the margins that people were using, why didn't they keep enabled the ability to buy shares with cash?
- lovehashbrowns 6y ago
  So apparently, a buy trade takes two days to clear. It just looks instant on the app. During the time it takes for your cash to go to rh to dtc to the other end, robinhood has to put up a collateral for some guarantee that the cash for the transaction will exist. Usually this collateral is between 1-3%. Because of how volatile gme is at the moment, dtc upped the percentage to 100%. So for every buy, rh has to put up cash collateral equal to the price of the purchase of gme. Obviously this isn't a big deal if gme is at $50. This is a big deal if gme is at $350. This is an even bigger deal if robinhood is doing this for millions of trades a day. The reason these mechanics exist is if you sell your stock, you should be guaranteed to get your money for the stock. Whether that money comes from a user of RH, or RH, or dtc, does not matter. Someone will give you the money for your stock. Therefore, sell trades are not restricted. Buy trades are because they require collateral. Some firms have cash on hand to cover the collateral. That's why some firms are letting you buy while others like RH aren't. RH paused buying of gme, took out a billion dollar loan and got hundreds of millions from investors, and will now enable buying again now that they have more cash on hand for collateral. Anyone please feel free to correct me on anything. This is my understanding from WeBull's CEO. Full video: https://youtu.be/4RS4JIEVyXM https://youtu.be/4RS4JIEVyXM
  - nikanj 6y ago
    So in left pocket RH has $200 from me, cash. And RH can't make a buy order for $200, because they need $200 in right pocket as collateral? Why not just use my cash as the cash collateral? I still don't see how they need a billion-dollar cash hoard for non-margin buyers.
    - lovehashbrowns 6y ago
      Lots of things can happen to the cash in your account between the time you hit buy and when that cash finishes transferring to DTC. DTC is trying to guarantee that the person selling the stock that you are buying is going to get their money. DTC does that by telling Robinhood to have collateral in case something happens to the cash that you are using to buy the stock. Something like Robinhood going bankrupt, for example. Because what happens if Robinhood can't, for whatever reason, put up the cash for the buy transaction? Some one still has to pay up. The problem is that eventually these failures start piling up moving up the system until eventually the government has to step in and hand out bailouts again. Collateral is a way of trying to prevent that. If Robinhood goes bankrupt, and they're dealing with this highly volatile stock, well at least they have enough collateral to cover transactions and the failure stops with Robinhood instead of moving up the system. This is all info I've gathered from reading around and I'm not an expert. Please anyone feel free to correct anything I'm saying. Also you kinda saw a hint of this when there was that Robinhood bug with infinite leverage. People turned $5,000 into tens of thousands via the glitch, and at the end of it all, Robinhood was one the that had to pay up for these glitches. Then they had to start hunting people down to try and recover the debt. Someone, at the end of the day, is going to pay for any of these transactions. DTC is just trying to ensure that the bag holder stops with Robinhood.
imdsm 6y ago
FYI, just disable JS to disable the paywall. For Chrome, open dev tools, ctrl/cmd+shift+p, "disable javascript".
xwdv 6y ago
What happens to the retail investors if Robinhood became insolvent?
strathmeyer 6y ago
"Is there any reason to believe Robinhood is worth $1B?"
PLenz 6y ago
I don't have a horse in the race re: GME but this spooked me - transfer initiated to another brokerage
nbzso 6y ago
In other news: Janet Yellen Paid 800 GRAND From Hedge Fund Linked To Robinhood Scandal. https://www.youtube.com/watch?v=eY85f9V6ySM https://www.youtube.com/watch?v=eY85f9V6ySM

641 points by coloneltcb 6y ago

O'rly? Earlier this week socialists were claiming the RH owners were getting rich by front-running their blue collar users. It seems this enrichment process has yet to be refined.

AndrewBissell 6y ago

So they put a halt on opening new positions not to protect their customers, but because it was straining their own liquidity position. They're certainly not the first broker to choose lying to the public over confessing to liquidity issues -- although I would say they're much more likely to weather this storm than their predecessors.

handmodel 6y ago
I mean - it has been revealed to be a shitty broker but I'm not sure if those two things are that different? If this afternoon Robinhood didn't have 1B secured how could it have taken the orders without violating every trading regulation in the book? They would either have had to lie to the people they were buying from or lie to their clients.
- stretchcat 6y ago
  Or they could just come clean and tell the truth..
  - etchalon 6y ago
    They sent an email yesterday: "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."
    - jzoch 6y ago
      and at the same time their own CEO made statements that they dont have liquidity issues. They also sent that communication well after the market closed. They should have sent a much more detailed explanation right at market open thursday
      - vkou 6y ago
        It can be argued that they don't have liquidity issues - they have collateral deposit issues (Due to the massive user growth, and the delay between when an ACH transfer to Robin Hood clears the banking system (a few days), and the time they permit you to trade on your account (less than a few days))
        exclusiv 6y ago
        They blocked regular buys though. If you have money in your RH account, this is a big problem.
        vkou 6y ago
        As I understand it, even for executing regular buys, the settlement houses require RH to maintain a large deposit of dollars as collateral. This collateral requirement goes up when a stock becomes heavily traded, or more volatile. Because of the insane volume & volatility of GME, RH's cushion of collateral was exhausted (And they've now replenished it, by borrowing & raising money.) The reason that sells were permitted to execute was because each sell by one of their users reduces the collateral requirements in their settlement accounts. (So the settlement houses allowed sell orders to go through.) The tl;dr is - when you are trading through a discount broker, you get a discount service. Serious brokerages, that are used by institutional investors don't have these problems, but they also charge a lot more for their services.
        freeone3000 6y ago
        My serious money is invested through Morgan Stanley. They have institutional investment services I do not qualify for, but I'm on their registered investor account, and it's usually $7 to $15 for simple trades. It's not that much more if you're actually planning on executing in volume.
- Dma54rhs 6y ago
  They should have disabled at some point new sign ups maybe? Why they didn't do that instead, probably tons of people first time to sign up with them to join the banter.
mdoms 6y ago
If you believe this you are legitimately the dumbest guy on this website.

rajacombinator 6y ago

Robinhood has been known to be sham for a very long time. Anyone with money there is willfully ignorant.

Triv888 6y ago
yes... https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321
- vmception 6y ago
  > Without admitting or denying the SEC’s findings, Robinhood agreed to a cease-and-desist order prohibiting it from violating the antifraud provisions of the Securities Act of 1933 and the recordkeeping provisions of the Securities Exchange Act of 1934, censuring it, and requiring it to pay a $65 million civil penalty. A) SEC should remove the option of "without admitting or denying" this time B) The CEO is choosing to speak in double speak because anything he says will violate the antifraud provisions after already being slapped for violating the antifraud provisions. (isn't the point of a law for the punishment to be a little more than agreeing not the violate the law? circular civil suit that should have been referred to the DOJ) C) Refer current actions to the DOJ and this prior settlement that was violated.
  - ivalm 6y ago
    I mean the fraud here is fairly eh. They gave a smaller price improvement (but still beat nbbo) relative to other discount brokerages. The lie was that they delivered same great price as other discount brokerages. However, most of their clients were small and still net-saved money by not paying the flat fee. The practice ended in 2018.
    - vmception 6y ago
      yeah they lied about revenue sources and why they were able to offer low prices. would have been better if they just shut up and didn't try that hook.

n_io 6y ago

The narrative seems to fit a little too comfortably...

MattGaiser 6y ago
That is just called something being true in many cases.
- n_io 6y ago
  Example?

tempsy 6y ago

The CEO just gave 3 interviews tonight and denied this was at all related to liquidity issues for the company in all 3 when pressed. Terrible look.

n_io 6y ago
I’d imagine liquidity issues are the least of their concerns right now. At least, they would be to me.
- Clewza313 6y ago
  Why? For a brokerage it's an existential concern. And they can't publicly admit it's a problem either, because that would likely trigger the brokerage equivalent of a bank run. (Of course, odds are they're already grappling with that as well.)
  - bredren 6y ago
    I had a neutral to negative view toward this product before today. In part due to the product’s UX having to change after a customer killed themselves and cited the app in their suicide note. [1] I noticed that before but bad stuff happens, I had not heard of further issues and it was likely a series of contributing factors. That said, this bind broke the entire concept of the branding of the product. I’d never install this thing now. If they have broken the brand and lost trust of users, no amount of short or medium term liquidity will save the company. [1] https://news.ycombinator.com/item?id=23578794 https://news.ycombinator.com/item?id=23578794 https://suicidepreventionlifeline.org/ https://suicidepreventionlifeline.org/
    - Clewza313 6y ago
      They've lost the trust of people YOLOing on meme stonks. I'm sure it's a noisy part of their userbase, but still only a part. It would be interesting to see stats on how many people use RH for long-term investments (buy and hold, DCA, etc), and how many use it as a form of gambling (day trading, leveraged options etc).

sdan 6y ago

One interesting thing that happened today as I was selling my AMC stock/options is that they executed lightning quick. Normally Robinhood (especially this morning) takes time to sell these options, yet they were immediately picked up. Would be crazy to think short sellers were buying up all the sell side stocks/options while retail were panic selling, to hedge against their shorts.

kegbuna 6y ago
This feels so likely when only retail investors were banned from buying. Who exactly is buying up all these shares then? Fingers only seem to point in one direction.

throwawaysea 6y ago

So much for the conspiracy theory about Robinhood changing policies to favor institutional traders over retail investors. Speculation is healthy but I am surprised to see so many educated people fall for social media fear mongering to the point that they decided to drive down Robinhood’s app reviews. Many of my friends who ate up all the outrage are the same people who laughed at QAnon conspiracy theorists, but here they are drinking the same koolaid.

MattGaiser 6y ago
Whenever we dislike or mistrust someone, people tend to overattribute that someone's failings or inconvenient actions to malice.
barbecue_sauce 6y ago
This is nowhere near the same koolaid.
julienreszka 6y ago
>Speculation is healthy I've never seen somebody say speculation is healthy but rather the opposite. Care to elaborate?
- throwawaysea 6y ago
  What I meant was that speculation and challenging the existing narrative plays a role in seeking the truth. So it has value and can be healthy. But it has to be treated for what it is - speculation. In this case, the actions of brokers should be investigated, and regulatory requirements should be scrutinized. But taking speculation as a foregone conclusion and resorting to an extreme reaction as such, is not healthy.
  - boc 6y ago
    It's not an extreme reaction to see a company like Robinhood bending to the will of its real customers, aka Citadel, and concluding that they were both running out of liquid money because they allow instant trading for new users AND that they protected their customers from getting wiped out by limiting the ability of retail investors to buy GME. Billions of dollars were on the line.

ajsharp 6y ago

"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation." Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line. I watched the CEO on CNN tonight, and while I found him pretty difficult to watch, this is a very difficult position to be in. If you admit on TV that your company is experiencing liquidity issues -- even if temporary in nature such as with clearing custodianship requirements -- you run the risk of triggering a greater panic through customer withdrawals/redemptions. This could turn into a run on the brokerage pretty quickly, and probably already has in some measure, especially after a day of massively lost customer trust. He certainly didn't help it by going on TV and lying about their liquidity issues. They probably would've been better off by issuing a statement and keeping him off TV.

peytn 6y ago
I’m not keeping my money with a financial institution that lies to me. End of story. Transfer initiated on my cash, and I’ll deal with moving stocks in the morning.
- MattGaiser 6y ago
  Would you have kept it with a near insolvent one? I suspect they lost you as a customer either way.
  - killaken2000 6y ago
    >I suspect they lost you as a customer either way. yes
  - peytn 6y ago
    They’ve had a number of technical issues over the past year, and I’ve given them the benefit of the doubt. This is the last straw for me personally.

anticristi 6y ago

Dear Hollywood, Please make a movie out of this.

MattGaiser 6y ago
It all happened remotely, so they could make it now while we are socially distancing.
jansan 6y ago
The Squeezed Short Edit: If you haven't watched "The Big Short" yet, watch it! Tonight!
- virgilp 6y ago
  WSB proposed "the retarded short" (they affectionately call themselves retards)
  - mnsc 6y ago
    I read something like "The dogs on main street" and thought it was funny.
  - enw 6y ago
    Honestly I’m so happy there’s a “mainstream” place on the Internet where people use the terms retarded and autistic affectionately. It feels like a breath of fresh air next to the language police of everywhere else.
    - jansan 6y ago
      Rick: Here, your sister's boss gave me a microscope that would have made me retarded. Morty: Ooh, oh boy Rick, I don' think you are allowed to say that word, you know. Rick: Morty, I'm not disparaging the differently abled. I'm stating the fact that if I'd used this microscope it would have made me mentally retarded. Morty: Yeah, but I don't think it's about logic, Rick. I, I think the word has just become a symbolic issue for powerful groups that feel like they're doing the right thing. Rick: Well, that's retarded.

dmichulke 6y ago

Not sure I understand: High volume causes sudden operating expenses up to a billion? Like, they're launching more EC2 instances? Or is that because they suffer from slippage? And if so, why don't they adjust the spreads? And if it's slippage, why would they still allow selling but not buying? Color me skeptic, but this makes no sense. For now I believe they just come up with some story to mask their obvious, IMO criminal, market manipulation by being a victim themselves. The billion is probably for the lawsuits. Can someone with a deeper knowledge chime in as to what could have happened so that it fits their narrative?

viktorcode 6y ago
Bloomberg explains the reason being the transactions clearance premium, which was increased due to the stocks volatility. https://www.bloomberg.com/news/articles/2021-01-29/for-robinhood-a-dash-for-cash-after-traders-took-on-wall-street https://www.bloomberg.com/news/articles/2021-01-29/for-robin...
shcheklein 6y ago
I think this is a good thread that answers some of those questions - https://news.ycombinator.com/item?id=25951475 https://news.ycombinator.com/item?id=25951475 . Also curious if there were other ways though.
skybrian 6y ago
As I understand it, stock trades take days to settle and the brokerage is on the hook if the customer doesn't pay for some reason. When the market is so volatile, Robinhood's trading partners demand more collateral.
- astrange 6y ago
  It’s NSCC who demands it, the central clearinghouse for all these trades.
  - qeternity 6y ago
    DTCC

sverhagen 6y ago

Is it just me, or did that article end... weird? Like, scrolling more, expecting it to continue. I'm sure we've been conditioned to such articles having a typical arc, that this one... didn't?

ruph123 6y ago
Honestly the pacing and structure of NYT articles is so weird. Sometimes I read an article and after a few well structured paragraphs it seems that they just add random additional info, go down rabbit holes and just end abruptly. As if your grandmother wants to tell you a story and weaves in random info of every participant’s relation to your family.
- PLenz 6y ago
  NYT writes for the Newspaper - and that means column inches. Articles get a space on the paper and are written so that they can be cut at different places to fit that space without major edits.
  - ruph123 6y ago
    Interesting point. But I have never experienced this with other newspapers who publish the traditional articles online. And the NYT should have a higher quality than most.
ricardobayes 6y ago
Well the story is still developing.

jariel 6y ago

Robin Hood is the real life Pied Piper - people think they are changing the world but really they're leading people around in circles.

latchkey 6y ago

Previous relevant comment https://news.ycombinator.com/item?id=25951475 https://news.ycombinator.com/item?id=25951475

jnord 6y ago

https://archive.is/FxNUg https://archive.is/FxNUg

mcphilip 6y ago

I get that the settlement plumbing constraints led to stock halts, but still trying to figure out why $DOGE stopped being tradable a few hours ago* Edit, removed some tin foil. *I don’t use RH so it could be back by the time you read this comment.

Xxplosive 6y ago

I wonder if Robinhood is preparing for the possibility that its margin book gets blown up when GME inevitably crashes. Crashing price creates cascading margin calls and they can't liquidate their customers' positions fast enough and end up having to cover their losses, rendering them insolvent. Sequoia, thinking that the fundamentals of the company are still solid long term and that they can wash their hands of this in an IPO in the near future, extends them a lifeline at absolutely brutal terms.

pishpash 6y ago
Did their customers all buy on margin?
- jeremycarter 6y ago
  I believe you can also increase your leverage. https://learn.robinhood.com/articles/4UWpxUy5G0KNDSbcMRs6WE/what-is-leverage/ https://learn.robinhood.com/articles/4UWpxUy5G0KNDSbcMRs6WE/...
ccmcarey 6y ago
RH are closing out some margin calls to decrease the risk of this happening afaik.
Tenoke 6y ago
They already liquidated everything on margin yesterday without giving users any choice or warning. It was part of what caused the drop in combination with the no buying.

kangaroozach 6y ago

Prediction: Robinhood loses class action and is bought by Schwab for pennies after founders plea bargain for 3 months prison and $20M in fine each and disappear into the ether like Adam Neumann.

fakedang 6y ago
That would actually become antitrust at that point.
avlewis 6y ago
After today, Id love to see RH get picked up for pennies on the dollar by Schwab treating it as a trade in at a Gamestop.
KingMachiavelli 6y ago
I would actually love if some actually reputable brokerage bought Robinhood and just offered it as an (optional) interface to their current trading platform. It's no doubt that part of Robinhood's success is that the UI is much better than a lot of current trading platforms.

loycombinate 6y ago

So, every broker is on margin with DDTC, they don’t have to have 100pct cash for the dollar amount of the buy orders they send to DDTC, as long as they will have the cash in 2 day. Some brokers like fidelity have hoards of 401k money and more likely to have 100pct cash for their orders. Trading brokers like IBKR RH keeps the minimum possible amount of cash with DDTC, and their automated systems adjusted up the minimum. This is more or less like the futures market, except futures trades settle at end of day (when CME closes for an hour at 5pm, and next day starts at 6pm lol) and DDTC is the equivalent of CME Who’s irresponsible here? DDTC for their lax cash requirements? Individual brokers that only keeps the minimum required cash? Futures cash requires 10pct or less, but no futures trader would only keep that much in their account, unless they don’t mind being wiped out and liquidated at end of day settlement (and then deposit more money the next day to trade again). Brokers cannot risk being wiped out at all.

deleted 6y ago
[deleted]
pishpash 6y ago
Doesn't regular Robinhood require settled cash to trade? Edit: Nope, looks like Robinhood "Instant" is now the default, margin account, but still limited to $1000 per account: https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou...
- loycombinate 6y ago
  1000 x13 millions users...
- ummonk 6y ago
  I think it doesn't matter, as they can't use the client's cash on it until the stock is delivered at the end of the T+2 settlement period.
- MrMan 6y ago
  This is about settlement on the back end.

beaker52 6y ago

Why are there so many HN posts about Robinhood right now? I've seen 3-4 posts in the past 24 hours and it seems like every comment thread I read also mentions Robinhood in some respect. It feels like HN is in the middle of an invasion by people trying to draw attention to it, but there could be a coincidence? Is it just the buzz around this GameStop action?

lovecg 6y ago
My guess is that it’s the simplest explanation: lots of people that frequent HN are invested in the story, both figuratively and literally.
Leherenn 6y ago
It is, as far as I know, an unprecedented event with potentially far reaching consequences, not matter how it ends up. A huge market manipulation by a massive amount of retail traders, enabled by Robinhood and similar brokers, that has the potential to cause a lot of established players billions in losses. How can and will the SEC react to this market manipulation; it seems unlikely they can pursue the millions of retail traders individually, so can we expect some new regulations instead? Can companies like RH exist in the same form in the future? The fact they stopped people from buying stocks may or may not have been legal, but it certainly distorted the action price. Again, I think this is pretty unprecedented, at least on this scale, so the financial landscape after all of this settle down might be significantly altered. Finally, if the short squeeze happens, what will be the consequences? Are we in for another huge financial crisis?

jcpham2 6y ago

Liquidated RH assets in 2020 and parked it in another app. Glad I did that!

29athrowaway 6y ago

To understand why this is happening, you need to understand the person that started it all: u/deepfuckingvalue https://www.reddit.com/user/deepfuckingvalue https://www.reddit.com/user/deepfuckingvalue He posted updates regularly of his positions. Scroll all the way down and see how much money he made over time. As he started becoming more successful, more and more people wanted to replicate his success, eventually creating the movement that you hear about today. He takes pride on holding no matter what. Spoiler alert: he went from ~100k to 33m USD.

kzrdude 6y ago
Most interestingly, he's at $14m cash after this week by selling a fraction. Looks good. Like any sane person, some gains are secured in actual money (hopefully he can move that to an insured account or investment if possible(?))
kklisura 6y ago
I read somewhere that u/deepfuckingvalue is this guy[0], but can't confirm it. [0] https://www.youtube.com/watch?v=GZTr1-Gp74U&ab_channel=RoaringKitty https://www.youtube.com/watch?v=GZTr1-Gp74U&ab_channel=Roari...
- 29athrowaway 6y ago
  That's very possible. https://www.reddit.com/r/wallstreetbets/comments/kk0g0f/gme_yolo_christmas_update_dec_25_2020/ https://www.reddit.com/r/wallstreetbets/comments/kk0g0f/gme_...

habosa 6y ago

Is it just me or is the involvement of VCs here really strange? If Robinhood was anything like a traditional broker (or bank/broker combination) Venture Capital firms would not have been anywhere on the list of places to get emergency money. Although I'm glad that RH has driven the price of trading down for everyone, this is one more reason why most people should keep their money with a more boring financial institution. Reminds me of when RH launched a "checking" account and claimed it had deposit insurance and then in about one day regulators said "absolutely no it does not": https://www.forbes.com/sites/ronshevlin/2019/01/02/the-robinhood-checking-account-was-doomed-to-fail/ https://www.forbes.com/sites/ronshevlin/2019/01/02/the-robin...

tuna-piano 6y ago
My first reaction to any news from a large company that people question the legality of is "I'm sure they have a team of highly qualified lawyers who signed off on this plan." But then I remembered about the RH checking account that clearly wasn't approved...
bombcar 6y ago
Most "real" brokerages can get access to billions if not trillions of cash for overnight/three days for settlement purposes. They say WallStreetBets is "4chan found a bloomberg terminal" - Robinhood is Silicon Valley masquerading as a real broker; perhaps even the Juicero thereof. I only have a small amount of play money there, and I continue to draw it down. TD Ameritrade and Vanguard serve as my real brokers. Side note: I kinda wonder what Bogle would have to say about all this if he were still alive; probably would have killed him.
- MrMan 6y ago
  I would never use a brokerage started by SV hucksters
- sumedh 6y ago
  > I kinda wonder what Bogle would have to say about all this if he were still alive; The next best thing is Warren Buffett, has he said anything on this?

secondcoming 6y ago

If a brokerage is having issues like this wouldn't it have been better for them to notify the exchanges who would decide whether to completely halt trading or not? Crippling half the order book just can't be right.

cced 6y ago

I don’t understand how all of a sudden the shift was made onto the insolvency of RH and that the discussion is less about the original conditions that led up to this. I just finished watching a video from Louis Rossmann [1] as well as one from Bruce Fenton [2]. In his video, Rossmann covers the technicalities and systems behind actually __making__ a trade with an app like RH. The videos were very informative and I learned quite a lot. With the exception of his recent interviews, it isn’t exactly clear what Robinhood was supposed to do differently. If my understanding is correct, clearing houses required more money up front to perform trades - RH didn’t have it so they stopped the trades unidirectionally. People got upset that they couldn’t buy but could sell which made it seem like RH wanted to manipulate the price - but isn’t it better than the alternative, the inability to both sell and buy would seem to me worse than what was done. Imagine them closing both and preventing people from selling if a crash occurs. The discussion would simply be « Robinhood stole our gains and wouldn’t let us move our funds ». Now, should it be the case that more money is required up front, intuitively it makes sense, I mean, who is supposed to front the bill on those 5000% returns? The hedge fund that just went bankrupt? Where exactly does this money come from? Isn’t RH just trying to play within the realities of the current system? Genuinely curious. [1]: https://m.youtube.com/watch?v=MAqxQe0l4g0&feature=youtu.be https://m.youtube.com/watch?v=MAqxQe0l4g0&feature=youtu.be [2]: https://m.youtube.com/watch?v=RQTC5f_VR9I&feature=youtu.be https://m.youtube.com/watch?v=RQTC5f_VR9I&feature=youtu.be

prohobo 6y ago
To be honest, it doesn't really matter. This isn't about whether Robinhood technically must or must not do what they're doing, but that the system is setup in such a way that all these claims of "supporting the people" are fundamentally 100% bullshit. Robinhood tanked their credibility by letting the mask slip and people are on that like hyenas because of the irony. Really though, the focus on them is a distraction from the much larger slip by the entire financial system.
- cced 6y ago
  > Really though, the focus on them is a distraction from the much larger slip by the entire financial system. Exactly. I also watched the recent CNBC interview with Chamath Palihapitiya [1]. I would like to it, but CNBC keeps taking it down. In any case, the host really doesn’t seem like he’s there to « get to the bottom of things or to understand » but to push the idea that the problem is anything other than the preconditions that led up to this. Chamath was spot on. [1]: CNBC Chamath Palihapitiya Interview January 27th, 2021

deleted 6y ago

[deleted]

abluecloud 6y ago

Can anyone answer me this question: if they needed to cover themselves from the margins that people were using, why didn't they keep enabled the ability to buy shares with cash?

lovehashbrowns 6y ago
So apparently, a buy trade takes two days to clear. It just looks instant on the app. During the time it takes for your cash to go to rh to dtc to the other end, robinhood has to put up a collateral for some guarantee that the cash for the transaction will exist. Usually this collateral is between 1-3%. Because of how volatile gme is at the moment, dtc upped the percentage to 100%. So for every buy, rh has to put up cash collateral equal to the price of the purchase of gme. Obviously this isn't a big deal if gme is at $50. This is a big deal if gme is at $350. This is an even bigger deal if robinhood is doing this for millions of trades a day. The reason these mechanics exist is if you sell your stock, you should be guaranteed to get your money for the stock. Whether that money comes from a user of RH, or RH, or dtc, does not matter. Someone will give you the money for your stock. Therefore, sell trades are not restricted. Buy trades are because they require collateral. Some firms have cash on hand to cover the collateral. That's why some firms are letting you buy while others like RH aren't. RH paused buying of gme, took out a billion dollar loan and got hundreds of millions from investors, and will now enable buying again now that they have more cash on hand for collateral. Anyone please feel free to correct me on anything. This is my understanding from WeBull's CEO. Full video: https://youtu.be/4RS4JIEVyXM https://youtu.be/4RS4JIEVyXM
- nikanj 6y ago
  So in left pocket RH has $200 from me, cash. And RH can't make a buy order for $200, because they need $200 in right pocket as collateral? Why not just use my cash as the cash collateral? I still don't see how they need a billion-dollar cash hoard for non-margin buyers.
  - lovehashbrowns 6y ago
    Lots of things can happen to the cash in your account between the time you hit buy and when that cash finishes transferring to DTC. DTC is trying to guarantee that the person selling the stock that you are buying is going to get their money. DTC does that by telling Robinhood to have collateral in case something happens to the cash that you are using to buy the stock. Something like Robinhood going bankrupt, for example. Because what happens if Robinhood can't, for whatever reason, put up the cash for the buy transaction? Some one still has to pay up. The problem is that eventually these failures start piling up moving up the system until eventually the government has to step in and hand out bailouts again. Collateral is a way of trying to prevent that. If Robinhood goes bankrupt, and they're dealing with this highly volatile stock, well at least they have enough collateral to cover transactions and the failure stops with Robinhood instead of moving up the system. This is all info I've gathered from reading around and I'm not an expert. Please anyone feel free to correct anything I'm saying. Also you kinda saw a hint of this when there was that Robinhood bug with infinite leverage. People turned $5,000 into tens of thousands via the glitch, and at the end of it all, Robinhood was one the that had to pay up for these glitches. Then they had to start hunting people down to try and recover the debt. Someone, at the end of the day, is going to pay for any of these transactions. DTC is just trying to ensure that the bag holder stops with Robinhood.

imdsm 6y ago

FYI, just disable JS to disable the paywall. For Chrome, open dev tools, ctrl/cmd+shift+p, "disable javascript".

xwdv 6y ago

What happens to the retail investors if Robinhood became insolvent?

strathmeyer 6y ago

"Is there any reason to believe Robinhood is worth $1B?"

PLenz 6y ago

I don't have a horse in the race re: GME but this spooked me - transfer initiated to another brokerage

nbzso 6y ago

In other news: Janet Yellen Paid 800 GRAND From Hedge Fund Linked To Robinhood Scandal. https://www.youtube.com/watch?v=eY85f9V6ySM https://www.youtube.com/watch?v=eY85f9V6ySM