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They have to have a certain amount to cover the value of all the stocks held by their clients so when 50% of their account holders have a stock that suddenly ga
by rtkwe 6y ago
They have to have a certain amount to cover the value of all the stocks held by their clients so when 50% of their account holders have a stock that suddenly gains 2-20x value things get tight. In your analogy the price of the milk is relatively stable in the case of gamestop the value of the milk is fluctuating wildly between the time you sent the kid, when he got to the store, when he picked up the milk, etc etc. except the kid is legally required to deliver the milk or make you whole.
- rattray 6y ago> They have to have a certain amount to cover the value of all the stocks held by their clients Huh? I don't understand this. What do they have to hold and why?
- ehnto 6y agoI presume it's a safety mechanism required by the financial apparatus so that they can make their investors whole if they ask to withdraw all at once. Something that given the current circumstances is actually quite possible. But being candid, that's just a guess.
- disgrunt 6y agoIt's a Dodd-Frank rule apparently. [0] [0]: https://www.zerohedge.com/markets/cash-strapped-robinhood-scrambles-raise-1-billion-rich https://www.zerohedge.com/markets/cash-strapped-robinhood-sc...
- jkestner 6y agoIt’s an SEC rule to guard against brokers going insolvent. Trades are not instant transactions so there’s a lot of credit being floated for days. Good thread explaining this, though still complex: https://mobile.twitter.com/KralcTrebor/status/1354952686165225478 https://mobile.twitter.com/KralcTrebor/status/13549526861652...
- xur17 6y agoIt feels like slow movement of money in our financial system causes a lot of these problems. Customer deposits take several days to settle (during which time Robinhood has to front the funds). Settlement of the stock trades / transfer of collateral to the DCC likely takes several days, etc.
- funfunfunction 6y agoThis sounds like a problem that might actually be solved best by blockchain.
- xur17 6y agoHonestly, just the utilization of stablecoins for interbank transfers would help with a ton. I acknowledge that it's technically possible to update the existing system to just support faster settlement, but given how long we've been waiting, I find it unlikely. As a user, I'd love to be able to deposit and withdraw stablecoins at banks - this would enable essentially instantaneous transfers, and provide an interface that anyone (including non-banks) could interface with.
- FabHK 6y agoThe mismatch between the speed of trading and the speed of settling can under extreme circumstances cause problems, evidently. > It feels like slow movement of money in our financial system causes a lot of these problems I'd turn that around and say that the hyper fast trading causes a lot of these problems, and in particular creates more problems than it solves. Introducing a Tobin Tax and replacing continuous trading with frequent auctions (maybe with stochastic end times, to limit sniping) would alleviate a lot of these problems, and put the rent-seeking HFT traders out of a job, while not impeding the important price discovery and capital allocation functions of the market much at all, I think.
- 8note 6y agoWhat's a Tobin tax?
- Person5478 6y ago> except the kid is legally required to deliver the milk or make you whole. ... *milk*? The poor boy will have to pull on teats until he fills the pail, how terrible. /I'll show myself out.
- richrichardsson 6y agoPlease do, this is not reddit.
- Person5478 6y agoOh I forgot, we're all automatons with no sense of humor. BLEEP BLOOP. BAD ROBOT WILL PUNISH SELF.