4 ms·
> If a stock trading app manipulates the market by preventing purchases They're likely close to hitting their collateral limits with the clearing house[0]. Du
by KMag 6y ago
> If a stock trading app manipulates the market by preventing purchases
They're likely close to hitting their collateral limits with the clearing house[0]. During yesterday's 5-minute interview with CNN's Chris Cuomo, RH's CEO mentioned their collateral obligations (plus unnamed regulatory requirements) as the reason for preventing new positions in GME. Every trade creates a collateral obligation with the clearing house for 2 days, so if RH goes bankrupt while the trades are being settled, nobody loses. The amount of this collateral obligation is a function of the volatility of the stock. Lots of high-volatility trades in the middle of the 2-day settlement process eat up collateral very quickly. If RH runs out of collateral, none of their customers can trade until some of the pending trades finish clearing.
The reason for still allowing people to close positions is presumably because people would scream bloody murder even harder if they were suddenly unable to exit these high-volatility positions.
Collusion to manipulate markets, particularly in such an incredibly high-profile situation, seems unlikely. Whatever RH does, they know there will likely be investigations, so they're almost certainly on their best behavior right now.
[0] https://news.ycombinator.com/item?id=25951475 https://news.ycombinator.com/item?id=25951475
- liaukovv 6y agoSo they have a legitimate technical reason for why the app doesn't work. How does that excuse them? If cat picture app has issues with their image hosting partner it is not my problem, that's the entire point of going through a middle-man like stock brokerage
- KMag 6y agoIt's a problem, but the accusation of criminal market manipulation appears unwarranted.
- res0nat0r 6y agoThere is a reason why stocks get straight up halted from trading due to extreme volatility. Robinhood had to the same on this extreme event to keep their company solvent. Just because folks don't understand how the market works doesn't mean it is a nefarious plot against the little guy.
- berryjerry 6y agoIF they are already requiring people to have the cash in their account to cover buys, how can they not have the collateral to cover them. They could have disabled options trading right? But why buying with cash?
- KMag 6y agoI think the issue is that they're allowing people to use cash right away when they sell, rather than waiting until T+2, and they can't instantly unilaterally change their ToS. They could block people from selling, but not block them from buying, but that would cause all kinds of problems. As I remember, eTrade also used to not require you to wait until T+2 to reinvest the proceeds from stock sales.