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It’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 e

It’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 ago
It 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 ago
  This sounds like a problem that might actually be solved best by blockchain.
  - xur17 6y ago
    Honestly, 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 ago
  The 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 ago
    What's a Tobin tax?
    - FabHK 6y ago
      Oh, sorry, it's this very simple idea that every trade is subject to a tiny fee (a few basis points). Totally irrelevant if you buy for the long term, but utterly destroys the business model of HFT. https://en.wikipedia.org/wiki/Tobin_tax https://en.wikipedia.org/wiki/Tobin_tax EDIT to add: Appropriately enough, Wikipedia says: > Another term for these broader tax schemes is Robin Hood tax, due to tax revenues from the (presumably richer) speculator funding general revenue (of whom the primary beneficiaries are less wealthy)

xur17 6y ago

It 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 ago
This sounds like a problem that might actually be solved best by blockchain.
- xur17 6y ago
  Honestly, 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 ago
The 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 ago
  What's a Tobin tax?
  - FabHK 6y ago
    Oh, sorry, it's this very simple idea that every trade is subject to a tiny fee (a few basis points). Totally irrelevant if you buy for the long term, but utterly destroys the business model of HFT. https://en.wikipedia.org/wiki/Tobin_tax https://en.wikipedia.org/wiki/Tobin_tax EDIT to add: Appropriately enough, Wikipedia says: > Another term for these broader tax schemes is Robin Hood tax, due to tax revenues from the (presumably richer) speculator funding general revenue (of whom the primary beneficiaries are less wealthy)