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I'm confused. Why is everyone getting mad at Robinhood? Wasn't it the market makers who stopped them from trading GME? And doesn't Robinhood have the right to s

I'm confused. Why is everyone getting mad at Robinhood? Wasn't it the market makers who stopped them from trading GME? And doesn't Robinhood have the right to sell margin stocks bought on margin?

NoOneNew 6y ago
They didnt allow people to buy GME. Only sell. Forced one sided positioning. It's rather frowned upon. That's where a big portion of hate comes from.
- bpodgursky 6y ago
  Ok, but if they had banned selling and there was a large price drop anyway (forcing investors to eat a loss, unable to sell), they would have been catastrophically screwed legally.
  - kinkrtyavimoodh 6y ago
    Robinhood doing anything unilaterally about this sounds and feels extremely sketchy and screams illegal to me (if it isn't it should be). It's one thing if the SEC stops all GME trade coz that would be fair across the board. But Robinhood effectively being able to block trades for retail while institutional investors do whatever screams market manipulation.
    - bpodgursky 6y ago
      Yeah, I'm not at all defending blocking buys, just saying that blocking both buys AND sells was completely out of the question.
- sidibe 6y ago
  Did they block people from buying or did they block people from opening new positions?
  - andonisus 6y ago
    Yes.
    - ibraheemdev 6y ago
      Yes to both?
      - randylahey 6y ago
        When someone does this it means both the things you asked are being answered in the affirmative.
- PragmaticPulp 6y ago
  Reading between the lines, they ran out of capital to post the required collateral for the trades. They've been dancing around the subject because they don't want to trigger a bank run, but this is likely why they had to suddenly raise $1 billion and draw down their credit lines yesterday. It appears they reached a point where they simply couldn't afford to support the buy orders on the volatile stocks any more. They likely had 2 options: 1) Shut down the entire platform until they could raise enough additional capital to post the required collateral. It's difficult to retain users and raise another round if you literally have to turn your service off on the hottest trading day every. 2) Shut down buy orders on the few stocks that were driving the capital requirements over the limit, at least allowing users to continue to sell. Frankly, I think the narrative that Robinhood users are driving this situation has been greatly exaggerated. A few weeks or months from now, I think we'll learn that the majority of volume came from institutional investors rather than retail users. Redditors may have sparked the situation, but hedge funds are certainly capitalizing on it.
nrmitchi 6y ago
Even if that is the case (which I don't disagree with you on) Robinhood has done, and continues to do, such a shitty job education it's users on what they're actually buying that they don't know this. So is this action Robinhood's fault? Not really. Is the fact that the user doesn't understand this at all Robinhood's fault? 100% absolutely.
CarelessExpert 6y ago
a) It's not clear these were margin calls. If they were, absolutely, they were in the right. If these were cash accounts, this would be... bad. b) The MM's almost certainly didn't force RH to shut down buys. Current speculation is it was likely a combination of pressure from clearing houses and their own internal risk management. Odds are they didn't have enough capital on hand to deal with settlement given the level of volatility, and if they let more people buy, it would've pushed them over allowable levels. This is supported by the fact that they've drawn down about 500mm from debt facilities and announced a 1B funding raise this morning (https://www.nytimes.com/2021/01/29/technology/robinhood-fundraising.html https://www.nytimes.com/2021/01/29/technology/robinhood-fund...), while throttling purchases of GME to no more than 5 shares per account and no more than 10 options contracts (https://robinhood.com/us/en/support/articles/changes-due-to-recent-market-volatility/ https://robinhood.com/us/en/support/articles/changes-due-to-...). And note, I say this is speculation because RH has been completely opaque about what happened here. All they say is "we have regulatory requirements", and we're left filling the blanks. Edit: In fairness to RH, I should note that in their blog post on the topic (https://blog.robinhood.com/news/2021/1/28/an-update-on-market-volatility https://blog.robinhood.com/news/2021/1/28/an-update-on-marke...) from late yesterday they mention: "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." This does obliquely point to the issues I mention above, and is enough to unpack what happened here if you have an understanding of the structural mechanics of stock trading. Though it'd be nice if they were a lot more direct in their language, here. If I was a layman investor this'd look like meaningless obfuscation. But it's certainly (somewhat) better than some of the early interviews and reporting...
- PragmaticPulp 6y ago
  > If they were, absolutely, they were in the right. If these were cash accounts, this would be... bad. As outlandish as this sounds, Robinhood signs everyone up for margin accounts by default. Users must explicitly opt-out of margin to get a cash account. Robinhood calls it "downgrading" their account.
TeMPOraL 6y ago
> Why is everyone getting mad at Robinhood? They were the first to suddenly block buying (but not selling!) GME when everyone in retail wanted to buy, and they refuse to explain why. > Wasn't it the market makers who stopped them from trading GME? Who knows? They refuse to explain anything. > And doesn't Robinhood have the right to sell margin stocks bought on margin? Yes. That part of the anger is misplaced. But it's not a significant part of the drama anyway.
- tptacek 6y ago
  They haven't refused to explain why. Very Online People just don't accept their explanation.
  - TeMPOraL 6y ago
    Well, they've published a blog post. And got CEO on the news. But what they offered was not an explanation. The explanation they offered in their blog post: "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." That's not an explanation, that's just hot air. What financial requirements? What capital obligations and clearinghouse deposits? Which requirements fluctuate based on volatility? How do these requirements protect the investors and the markets? And ultimately, how exactly any of this leads to them blocking buy orders on $GME?
    - tptacek 6y ago
      We have so many sources, from multiple brokerages, about increased capital requirements to clear GME and AMC trades that it has revived discussions about whether there are bad unintended consequences of the Dodd-Frank regulations that centralized clearing, which have the impact of transmuting private company risk management policies (that protect systemically important firms like DTCC) into global financial policy. But you've managed to dismiss all this as "hot air", thus, I would suggest, confirming my suggestion that Very Online People simply don't accept the fairly clear explanation of what happened. It seems reasonable to fault Robinhood for shitty comms (though, as 'JumpCrisscross pointed out yesterday, the general rule is "aviate, navigate, then communicate"), but the endemic message board pathology is to use shitty comms to justify conspiracy theories, which are more fun to talk about than reality and take over these threads like algae.
franklampard 6y ago
The CEO denied anyone else influenced them to do what they did yesterday.
- secondcoming 6y ago
  I'm not buying it. Lots of other brokers also did the same. I think RH were the first. I find it hard to believe this move wasn't coordinated in some fashion.
  - CarelessExpert 6y ago
    > Lots of other brokers also did the same. And a lot didn't. Some (e.g. TD A) imposed increased margin requirements, but that's perfectly normal for high volatility stocks or options in margin accounts, and to be honest I'm amazed it didn't happen sooner. This comes down to those brokers that are their own clearing house versus those brokers that rely on a company like Apex. It looks like Robinhood, Webull, IBKR, and others, all ran into the same capital requirements issues as their customers loaded up on a high value, high volatility stock. Their clearing houses basically told them they had to pony up more cash, or they had to stop allowing customers to increase their positions. So this was "coordinated" insofar as they all used a clearing house (I believe RH and Webull both use Apex, but don't quote me on that) that made what amounts to a margin call on the brokerage. To be clear, this should not have happened. It's entirely a function of the companies being under-capitalized as a result of inadequate risk management practices in this very strange market environment.
    - secondcoming 6y ago
      > they had to stop allowing customers to increase their positions I can't get my head around the logic. They allowed people to sell; you can't sell unless there's a buyer. But RH+ blocked people from buying. Does a clearing house care whether a transaction is a buy or sell?
      - CarelessExpert 6y ago
bri3d 6y ago
If you read the article at all, it clearly mentions that the traders in question don't believe they bought the shares on margin. Whether or not this is user error, who knows. And Citadel have gone on the record repeatedly stating they did not influence Robinhood's trading halt. The information available makes it seem as though Robinhood were told they needed to deposit more into their DTCC (clearinghouse) accounts to allow trades to continue - essentially, that Robinhood got called on their own margins at the clearinghouse level. https://www.ft.com/content/9a1b24e6-0433-462a-a860-c2504ea565e4 https://www.ft.com/content/9a1b24e6-0433-462a-a860-c2504ea56... 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... https://www.nytimes.com/2021/01/29/business/dealbook/robinhood-fundraise-customers.html https://www.nytimes.com/2021/01/29/business/dealbook/robinho...
- midjji 6y ago
  There have been rumors of robinhood simply being buggy for some time before this. Things like orders being processed after being cancelled, orders being processed out of order causing conflicts, orders being executed massively delayed after the client threw an error message. Basically, if their database infrastructure is buggy and unstable, then combined with heavy load, something like this could happen. And notably robinhood does not provide use client side action logs, only server side actions logs on demand. I think it could have happened, but I very much doubt they ever did it intentionally, and it is practically guaranteed people would claim this happened to them, regardless of if it did actually happen to them.
  - crazynick4 6y ago
    If they process an order 'late' the price change could swing in their favor and they would end up netting the difference. FXCM got caught for this in FX years ago, skimming fractions of pennies off the trades for millions in profit. I'd be interested to know if those late trades always went in one direction.
CyberDildonics 6y ago
There is a thundering herd of people with no experience buying a stock at 100x what it was a few months ago and vowing to lose their savings by never selling. It shouldn't be a surprise when they ultimately get outraged at the biggest target.
JohnTHaller 6y ago
Robinhood blocked its users from buying or opening new positions in GME. But allowed selling. From the outside, it appears to be a coordinated effort to drive the price down to protect the overgeneralized billionaire hedge owners. The CEO of Robinhood did interviews to 'explain' why they did it, but it was really just a word salad of an explanation. CORRECTION: "60% of its users owned GME at the time." appears to have been incorrectly reported and since corrected.
- reducesuffering 6y ago
  60% of RH users owning GME is false (or if they do, it's indirectly through ETF's that they can still sell). This was misreporting and corrected by the original reporter. https://twitter.com/motherboard/status/1354956664974278656 https://twitter.com/motherboard/status/1354956664974278656
  - JohnTHaller 6y ago
    Thanks, corrected.
bvirb 6y ago
I think one way to look at it is that RH based their company off of amassing a huge number of retail customers and selling their deal flow. They then pissed off a huge number of those retail customers with a surprise and un-announced change to their trading rules (no more buying GME) in the middle of those retail customer's massively successful effort to make a bunch of money using their product. Their customers then pretty quickly lost a bunch of money. Regardless of where the fault lies that seems like a recipe for pissing of a lot of your customers, and from there it seems reasonable that the customers would be pissed at the company who sold them the product (as opposed to one of their vendors/customers). In that light, and particularly w/ a finance app, it might seem even weirder if their angry customers _weren't_ mad at Robinhood and were willing to accept "it wasn't our fault" for any reason.
MrMan 6y ago
RH might well be incompetent - I dont understand why we are discussing them when their offering is inferior to basically all other brokerages. people should switch away from bad products / services

I'm confused. Why is everyone getting mad at Robinhood? Wasn't it the market makers who stopped them from trading GME? And doesn't Robinhood have the right to sell margin stocks bought on margin?

NoOneNew 6y ago

They didnt allow people to buy GME. Only sell. Forced one sided positioning. It's rather frowned upon. That's where a big portion of hate comes from.

bpodgursky 6y ago
Ok, but if they had banned selling and there was a large price drop anyway (forcing investors to eat a loss, unable to sell), they would have been catastrophically screwed legally.
- kinkrtyavimoodh 6y ago
  Robinhood doing anything unilaterally about this sounds and feels extremely sketchy and screams illegal to me (if it isn't it should be). It's one thing if the SEC stops all GME trade coz that would be fair across the board. But Robinhood effectively being able to block trades for retail while institutional investors do whatever screams market manipulation.
  - bpodgursky 6y ago
    Yeah, I'm not at all defending blocking buys, just saying that blocking both buys AND sells was completely out of the question.
sidibe 6y ago
Did they block people from buying or did they block people from opening new positions?
- andonisus 6y ago
  Yes.
  - ibraheemdev 6y ago
    Yes to both?
    - randylahey 6y ago
      When someone does this it means both the things you asked are being answered in the affirmative.
PragmaticPulp 6y ago
Reading between the lines, they ran out of capital to post the required collateral for the trades. They've been dancing around the subject because they don't want to trigger a bank run, but this is likely why they had to suddenly raise $1 billion and draw down their credit lines yesterday. It appears they reached a point where they simply couldn't afford to support the buy orders on the volatile stocks any more. They likely had 2 options: 1) Shut down the entire platform until they could raise enough additional capital to post the required collateral. It's difficult to retain users and raise another round if you literally have to turn your service off on the hottest trading day every. 2) Shut down buy orders on the few stocks that were driving the capital requirements over the limit, at least allowing users to continue to sell. Frankly, I think the narrative that Robinhood users are driving this situation has been greatly exaggerated. A few weeks or months from now, I think we'll learn that the majority of volume came from institutional investors rather than retail users. Redditors may have sparked the situation, but hedge funds are certainly capitalizing on it.

nrmitchi 6y ago

Even if that is the case (which I don't disagree with you on) Robinhood has done, and continues to do, such a shitty job education it's users on what they're actually buying that they don't know this. So is this action Robinhood's fault? Not really. Is the fact that the user doesn't understand this at all Robinhood's fault? 100% absolutely.

CarelessExpert 6y ago

a) It's not clear these were margin calls. If they were, absolutely, they were in the right. If these were cash accounts, this would be... bad. b) The MM's almost certainly didn't force RH to shut down buys. Current speculation is it was likely a combination of pressure from clearing houses and their own internal risk management. Odds are they didn't have enough capital on hand to deal with settlement given the level of volatility, and if they let more people buy, it would've pushed them over allowable levels. This is supported by the fact that they've drawn down about 500mm from debt facilities and announced a 1B funding raise this morning (https://www.nytimes.com/2021/01/29/technology/robinhood-fundraising.html https://www.nytimes.com/2021/01/29/technology/robinhood-fund...), while throttling purchases of GME to no more than 5 shares per account and no more than 10 options contracts (https://robinhood.com/us/en/support/articles/changes-due-to-recent-market-volatility/ https://robinhood.com/us/en/support/articles/changes-due-to-...). And note, I say this is speculation because RH has been completely opaque about what happened here. All they say is "we have regulatory requirements", and we're left filling the blanks. Edit: In fairness to RH, I should note that in their blog post on the topic (https://blog.robinhood.com/news/2021/1/28/an-update-on-market-volatility https://blog.robinhood.com/news/2021/1/28/an-update-on-marke...) from late yesterday they mention: "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." This does obliquely point to the issues I mention above, and is enough to unpack what happened here if you have an understanding of the structural mechanics of stock trading. Though it'd be nice if they were a lot more direct in their language, here. If I was a layman investor this'd look like meaningless obfuscation. But it's certainly (somewhat) better than some of the early interviews and reporting...

PragmaticPulp 6y ago
> If they were, absolutely, they were in the right. If these were cash accounts, this would be... bad. As outlandish as this sounds, Robinhood signs everyone up for margin accounts by default. Users must explicitly opt-out of margin to get a cash account. Robinhood calls it "downgrading" their account.

TeMPOraL 6y ago

> Why is everyone getting mad at Robinhood? They were the first to suddenly block buying (but not selling!) GME when everyone in retail wanted to buy, and they refuse to explain why. > Wasn't it the market makers who stopped them from trading GME? Who knows? They refuse to explain anything. > And doesn't Robinhood have the right to sell margin stocks bought on margin? Yes. That part of the anger is misplaced. But it's not a significant part of the drama anyway.

tptacek 6y ago
They haven't refused to explain why. Very Online People just don't accept their explanation.
- TeMPOraL 6y ago
  Well, they've published a blog post. And got CEO on the news. But what they offered was not an explanation. The explanation they offered in their blog post: "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." That's not an explanation, that's just hot air. What financial requirements? What capital obligations and clearinghouse deposits? Which requirements fluctuate based on volatility? How do these requirements protect the investors and the markets? And ultimately, how exactly any of this leads to them blocking buy orders on $GME?
  - tptacek 6y ago
    We have so many sources, from multiple brokerages, about increased capital requirements to clear GME and AMC trades that it has revived discussions about whether there are bad unintended consequences of the Dodd-Frank regulations that centralized clearing, which have the impact of transmuting private company risk management policies (that protect systemically important firms like DTCC) into global financial policy. But you've managed to dismiss all this as "hot air", thus, I would suggest, confirming my suggestion that Very Online People simply don't accept the fairly clear explanation of what happened. It seems reasonable to fault Robinhood for shitty comms (though, as 'JumpCrisscross pointed out yesterday, the general rule is "aviate, navigate, then communicate"), but the endemic message board pathology is to use shitty comms to justify conspiracy theories, which are more fun to talk about than reality and take over these threads like algae.

franklampard 6y ago

The CEO denied anyone else influenced them to do what they did yesterday.

secondcoming 6y ago
I'm not buying it. Lots of other brokers also did the same. I think RH were the first. I find it hard to believe this move wasn't coordinated in some fashion.
- CarelessExpert 6y ago
  > Lots of other brokers also did the same. And a lot didn't. Some (e.g. TD A) imposed increased margin requirements, but that's perfectly normal for high volatility stocks or options in margin accounts, and to be honest I'm amazed it didn't happen sooner. This comes down to those brokers that are their own clearing house versus those brokers that rely on a company like Apex. It looks like Robinhood, Webull, IBKR, and others, all ran into the same capital requirements issues as their customers loaded up on a high value, high volatility stock. Their clearing houses basically told them they had to pony up more cash, or they had to stop allowing customers to increase their positions. So this was "coordinated" insofar as they all used a clearing house (I believe RH and Webull both use Apex, but don't quote me on that) that made what amounts to a margin call on the brokerage. To be clear, this should not have happened. It's entirely a function of the companies being under-capitalized as a result of inadequate risk management practices in this very strange market environment.
  - secondcoming 6y ago
    > they had to stop allowing customers to increase their positions I can't get my head around the logic. They allowed people to sell; you can't sell unless there's a buyer. But RH+ blocked people from buying. Does a clearing house care whether a transaction is a buy or sell?
    - CarelessExpert 6y ago

bri3d 6y ago

If you read the article at all, it clearly mentions that the traders in question don't believe they bought the shares on margin. Whether or not this is user error, who knows. And Citadel have gone on the record repeatedly stating they did not influence Robinhood's trading halt. The information available makes it seem as though Robinhood were told they needed to deposit more into their DTCC (clearinghouse) accounts to allow trades to continue - essentially, that Robinhood got called on their own margins at the clearinghouse level. https://www.ft.com/content/9a1b24e6-0433-462a-a860-c2504ea565e4 https://www.ft.com/content/9a1b24e6-0433-462a-a860-c2504ea56... 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... https://www.nytimes.com/2021/01/29/business/dealbook/robinhood-fundraise-customers.html https://www.nytimes.com/2021/01/29/business/dealbook/robinho...

midjji 6y ago
There have been rumors of robinhood simply being buggy for some time before this. Things like orders being processed after being cancelled, orders being processed out of order causing conflicts, orders being executed massively delayed after the client threw an error message. Basically, if their database infrastructure is buggy and unstable, then combined with heavy load, something like this could happen. And notably robinhood does not provide use client side action logs, only server side actions logs on demand. I think it could have happened, but I very much doubt they ever did it intentionally, and it is practically guaranteed people would claim this happened to them, regardless of if it did actually happen to them.
- crazynick4 6y ago
  If they process an order 'late' the price change could swing in their favor and they would end up netting the difference. FXCM got caught for this in FX years ago, skimming fractions of pennies off the trades for millions in profit. I'd be interested to know if those late trades always went in one direction.

CyberDildonics 6y ago

There is a thundering herd of people with no experience buying a stock at 100x what it was a few months ago and vowing to lose their savings by never selling. It shouldn't be a surprise when they ultimately get outraged at the biggest target.

JohnTHaller 6y ago

Robinhood blocked its users from buying or opening new positions in GME. But allowed selling. From the outside, it appears to be a coordinated effort to drive the price down to protect the overgeneralized billionaire hedge owners. The CEO of Robinhood did interviews to 'explain' why they did it, but it was really just a word salad of an explanation. CORRECTION: "60% of its users owned GME at the time." appears to have been incorrectly reported and since corrected.

reducesuffering 6y ago
60% of RH users owning GME is false (or if they do, it's indirectly through ETF's that they can still sell). This was misreporting and corrected by the original reporter. https://twitter.com/motherboard/status/1354956664974278656 https://twitter.com/motherboard/status/1354956664974278656
- JohnTHaller 6y ago
  Thanks, corrected.

bvirb 6y ago

I think one way to look at it is that RH based their company off of amassing a huge number of retail customers and selling their deal flow. They then pissed off a huge number of those retail customers with a surprise and un-announced change to their trading rules (no more buying GME) in the middle of those retail customer's massively successful effort to make a bunch of money using their product. Their customers then pretty quickly lost a bunch of money. Regardless of where the fault lies that seems like a recipe for pissing of a lot of your customers, and from there it seems reasonable that the customers would be pissed at the company who sold them the product (as opposed to one of their vendors/customers). In that light, and particularly w/ a finance app, it might seem even weirder if their angry customers _weren't_ mad at Robinhood and were willing to accept "it wasn't our fault" for any reason.

MrMan 6y ago

RH might well be incompetent - I dont understand why we are discussing them when their offering is inferior to basically all other brokerages. people should switch away from bad products / services