16 ms·

The only thing Robinhood is lying about is their solvency.

bilbo0s 6y ago
I agree. I would bet they don't have available funds. They framed it as, "We're stopping this to help you." But the reality was more like, "We're stopping this because we can't legally facilitate any more of these trades since we don't have the money to spare."
- pishpash 6y ago
  It is both, they need to help themselves and help customers who would be harmed if Robinhood had gone under suddenly. An orderly unwinding is better for everyone.
psychlops 6y ago
I believe this as well. He did not do himself any favors and let himself be cornered on two interviews. I respect that he cannot come out and say they have solvency issues, as his accounts would empty fast turning a potential solvency issue into a real one. But he didn't seem to even have a clear idea of, nor a numerical way to explain why they were having settlement issues. My guess is that they will be spending more money in their clearing department this year.
shawndrost 6y ago
Do you believe that about all the brokerages that halted trading on GME et al? Or did Robinhood call a halt due to insolvency, and coincidentally, other brokerages called a halt for unrelated reasons?
- pmiller2 6y ago
  Suppose you're right. How do you explain the $1B loan Robinhood took out?
  - rdiddly 6y ago
    Taking out a loan, in itself, doesn't indicate insolvency. If it did, nobody would lend, ever. Now defaulting on a loan - that does indicate insolvency.
    - valuearb 6y ago
      You are correct. But an emergency loan indicates increased risk of insolvency. Robinhood isn’t going to borrow money they don’t need, and raise their interest costs. Likely the loans were preexisting credit lines, so they were obligated to find Robinhood upon request. The question is whether it will be enough and if not, whether new loans or investment will be available. Sitting on the outside it’s impossible to know whether this is an eminently comfortable buffer or a last finger in the dike.
- valuearb 6y ago
  I suspect if they didn’t have liquidity issues, they were just quicker that Robinhood to prevent them. I’m sure they didn’t want to tie up a huge part of their collateral in BME.
  - xenadu02 6y ago
    You think eTrade, owned by Morgan Stanley, had liquidity problems?? That's so outrageous it beggars belief. There was absolutely some kind of coordinated manipulation happening. It is telling that the SEC's statement seems to have scared at least some of the brokers away from trying to prohibit buying (but allowing selling). The market has circuit breakers for a reason and brokers can and do stop all trades on a symbol in certain extraordinary circumstances. But only allowing selling is basically forcing the price down and obvious manipulation.
    - valuearb 6y ago
      I doubt E-Trade has access to much of Morgan Stanley’s liquidity, that would be absurd. Even they have limitations their parent enforces, and it would be really inefficient to operate with a massive surplus of collateral. But again I said they may just not have liked tying up so much collateral for a single trade. Different companies with different needs. And restricting purchases while allowing selling is the fastest way to reduce your collateral requirements. Every share sold is money the DTCC owes you, every purchase is money you owe them. Lastly, it wasn’t a very useful conspiracy if restricting purchases on this rabble of minor brokers was the method. You could still buy GME across over 90% of the brokers by client base. Even my broker, InteractiveBrokers, only restricted options. I could buy all day long. Or go long all day by.
cma 6y ago
Could be something like if Citadel goes insolvent and only makes their payments for flow to Robinhood on a delayed schedule, then Robinhood may not get paid for the last quarter or year of income and incur huge losses.
- astrange 6y ago
  Citadel (who loaned Melvin a lot of money) and Citadel Securities (who pay RH for order flow) are not the same company - they used to be, but have split up.
  - cma 6y ago
    Corporate veil could be pierced if there was attempt to have one of the companies change Robinhood's behavior on behalf of the other, but that is pure speculation and many of the other explanations make sense too.
justforyou 6y ago
If the SEC had done their job RH would have been shut down ages ago due to their platform's facilitation of rampant identity theft.
hinkley 6y ago
Tenev said they didn't have a liquidity problem. I think he lied about that, but I think they're solvent. The reserve system required by the securities people mean they have to have a cash position proportional to the total flux of trades. There were some laws passed a few years back that reduce how quickly you can turn unsettled trades into new trades. Without that they'd probably need a much larger cash position. I suspect he was thinking of bank runs. If people think they aren't solvent, then it becomes true. If he says they have a liquidity problem (which I agree the loan they took out is a confession of that fact), then they could have a solvency problem if everyone without a margin account cashes out.
adrr 6y ago
I wonder if they have s-1 confidentiality filed and they are in quiet period.

I agree. I would bet they don't have available funds. They framed it as, "We're stopping this to help you." But the reality was more like, "We're stopping this because we can't legally facilitate any more of these trades since we don't have the money to spare."

pishpash 6y ago
It is both, they need to help themselves and help customers who would be harmed if Robinhood had gone under suddenly. An orderly unwinding is better for everyone.

psychlops 6y ago

I believe this as well. He did not do himself any favors and let himself be cornered on two interviews. I respect that he cannot come out and say they have solvency issues, as his accounts would empty fast turning a potential solvency issue into a real one. But he didn't seem to even have a clear idea of, nor a numerical way to explain why they were having settlement issues. My guess is that they will be spending more money in their clearing department this year.

shawndrost 6y ago

Do you believe that about all the brokerages that halted trading on GME et al? Or did Robinhood call a halt due to insolvency, and coincidentally, other brokerages called a halt for unrelated reasons?

pmiller2 6y ago
Suppose you're right. How do you explain the $1B loan Robinhood took out?
- rdiddly 6y ago
  Taking out a loan, in itself, doesn't indicate insolvency. If it did, nobody would lend, ever. Now defaulting on a loan - that does indicate insolvency.
  - valuearb 6y ago
    You are correct. But an emergency loan indicates increased risk of insolvency. Robinhood isn’t going to borrow money they don’t need, and raise their interest costs. Likely the loans were preexisting credit lines, so they were obligated to find Robinhood upon request. The question is whether it will be enough and if not, whether new loans or investment will be available. Sitting on the outside it’s impossible to know whether this is an eminently comfortable buffer or a last finger in the dike.
valuearb 6y ago
I suspect if they didn’t have liquidity issues, they were just quicker that Robinhood to prevent them. I’m sure they didn’t want to tie up a huge part of their collateral in BME.
- xenadu02 6y ago
  You think eTrade, owned by Morgan Stanley, had liquidity problems?? That's so outrageous it beggars belief. There was absolutely some kind of coordinated manipulation happening. It is telling that the SEC's statement seems to have scared at least some of the brokers away from trying to prohibit buying (but allowing selling). The market has circuit breakers for a reason and brokers can and do stop all trades on a symbol in certain extraordinary circumstances. But only allowing selling is basically forcing the price down and obvious manipulation.
  - valuearb 6y ago
    I doubt E-Trade has access to much of Morgan Stanley’s liquidity, that would be absurd. Even they have limitations their parent enforces, and it would be really inefficient to operate with a massive surplus of collateral. But again I said they may just not have liked tying up so much collateral for a single trade. Different companies with different needs. And restricting purchases while allowing selling is the fastest way to reduce your collateral requirements. Every share sold is money the DTCC owes you, every purchase is money you owe them. Lastly, it wasn’t a very useful conspiracy if restricting purchases on this rabble of minor brokers was the method. You could still buy GME across over 90% of the brokers by client base. Even my broker, InteractiveBrokers, only restricted options. I could buy all day long. Or go long all day by.

cma 6y ago

Could be something like if Citadel goes insolvent and only makes their payments for flow to Robinhood on a delayed schedule, then Robinhood may not get paid for the last quarter or year of income and incur huge losses.

astrange 6y ago
Citadel (who loaned Melvin a lot of money) and Citadel Securities (who pay RH for order flow) are not the same company - they used to be, but have split up.
- cma 6y ago
  Corporate veil could be pierced if there was attempt to have one of the companies change Robinhood's behavior on behalf of the other, but that is pure speculation and many of the other explanations make sense too.

justforyou 6y ago

If the SEC had done their job RH would have been shut down ages ago due to their platform's facilitation of rampant identity theft.

hinkley 6y ago

Tenev said they didn't have a liquidity problem. I think he lied about that, but I think they're solvent. The reserve system required by the securities people mean they have to have a cash position proportional to the total flux of trades. There were some laws passed a few years back that reduce how quickly you can turn unsettled trades into new trades. Without that they'd probably need a much larger cash position. I suspect he was thinking of bank runs. If people think they aren't solvent, then it becomes true. If he says they have a liquidity problem (which I agree the loan they took out is a confession of that fact), then they could have a solvency problem if everyone without a margin account cashes out.

adrr 6y ago

I wonder if they have s-1 confidentiality filed and they are in quiet period.