5 ms·

Yea, I wonder if Robinhood can survive into next week. Clearly their DTCC collateral requirements are skyrocketing and tapping out their credit lines wasn’t eno

Yea, I wonder if Robinhood can survive into next week. Clearly their DTCC collateral requirements are skyrocketing and tapping out their credit lines wasn’t enough. 50-50 chance that Robinhood files bankruptcy and WallStreetBets traders get stuck waiting months or years for their positions to settle. That would be the ultimate irony after the tantrums they threw yesterday while Robinhood was drowning.

vmsp 6y ago
Wouldn't that, basically, guarantee the short squeeze, though? If people can't access their broker, they can't sell. Or can Robinhood start liquidating their customer's positions without authorization?
- piva00 6y ago
  I think it all depends on how they will assign ownership to the assets. Stocks are, at sometimes, a surprisingly tricky case to determine ownership [0]. [0] https://www.bloomberg.com/opinion/articles/2015-07-14/banks-forgot-who-was-supposed-to-own-dell-shares https://www.bloomberg.com/opinion/articles/2015-07-14/banks-...
- deleted 6y ago
  [deleted]
thebean11 6y ago
I can't see this happening, why wouldn't investors just give them a bridge loan? They'd be insane to let their (massive) investment go to zero, when the alternative is an ultra-short term loan with basically no risk (the funds are just stuck at the clearinghouse as I understand it).
- jmalicki 6y ago
  They did get new investment (the story isn't clear if it's a bridge loan or equity) https://techcrunch.com/2021/01/29/robinhood-raises-1b-after-trading-halts-to-keep-its-platform-running/ https://techcrunch.com/2021/01/29/robinhood-raises-1b-after-...
  - ajsharp 6y ago
    According to the NYT story it sounds like a convertible note or something similar: "Investors who provide new financing to Robinhood will receive additional equity in the company. The investors will get that equity at a discounted valuation tied to the price of Robinhood shares when the company goes public, two of the people said." https://www.nytimes.com/2021/01/29/technology/robinhood-fundraising.html https://www.nytimes.com/2021/01/29/technology/robinhood-fund...
- valuearb 6y ago
  Maybe their investors can’t come up with multiple billions in the next few days? And what if GME goes to $1,000 Monday, or $10? And Robinhood still gets liquidated? Where is there no risk?
- tedunangst 6y ago
  The risk is that the million or whatever new users who just funded their account with an ACH transfer from their checking account don't actually have those funds in their bank.
- 015a 6y ago
  In the past three days, they've taken a $2.5B emergency credit line from JP Morgan and $1B in emergency funding from their investors. This all happened before these trade restrictions. At the scale we're talking about here, it gets to a point very quickly where nothing can save them except government intervention. Robinhood may not be at that point yet (and I very much doubt the government would step in to help them), but its also the case that their eligibility for huge loans like they need is hurt because the measures they need to take to remain solvent (locking down trades) is also hurting their future revenue (users are concerned and may pull out). That's why liquidity events are so scary; everything just stops, and when you stop a market it sometimes can't ever get going again.
jmalicki 6y ago
Is there any evidence that RH's collateral requirements specifically are increasing? The DTCC typically has a restricted list of specific securities with higher than usual collateral requirements, usually because of volatility - it seems that in RH's case, their use base mostly wants to trade stocks on this restricted list, causing severe issues for RH.

vmsp 6y ago

Wouldn't that, basically, guarantee the short squeeze, though? If people can't access their broker, they can't sell. Or can Robinhood start liquidating their customer's positions without authorization?

piva00 6y ago
I think it all depends on how they will assign ownership to the assets. Stocks are, at sometimes, a surprisingly tricky case to determine ownership [0]. [0] https://www.bloomberg.com/opinion/articles/2015-07-14/banks-forgot-who-was-supposed-to-own-dell-shares https://www.bloomberg.com/opinion/articles/2015-07-14/banks-...
deleted 6y ago
[deleted]

thebean11 6y ago

I can't see this happening, why wouldn't investors just give them a bridge loan? They'd be insane to let their (massive) investment go to zero, when the alternative is an ultra-short term loan with basically no risk (the funds are just stuck at the clearinghouse as I understand it).

jmalicki 6y ago
They did get new investment (the story isn't clear if it's a bridge loan or equity) https://techcrunch.com/2021/01/29/robinhood-raises-1b-after-trading-halts-to-keep-its-platform-running/ https://techcrunch.com/2021/01/29/robinhood-raises-1b-after-...
- ajsharp 6y ago
  According to the NYT story it sounds like a convertible note or something similar: "Investors who provide new financing to Robinhood will receive additional equity in the company. The investors will get that equity at a discounted valuation tied to the price of Robinhood shares when the company goes public, two of the people said." https://www.nytimes.com/2021/01/29/technology/robinhood-fundraising.html https://www.nytimes.com/2021/01/29/technology/robinhood-fund...
valuearb 6y ago
Maybe their investors can’t come up with multiple billions in the next few days? And what if GME goes to $1,000 Monday, or $10? And Robinhood still gets liquidated? Where is there no risk?
tedunangst 6y ago
The risk is that the million or whatever new users who just funded their account with an ACH transfer from their checking account don't actually have those funds in their bank.
015a 6y ago
In the past three days, they've taken a $2.5B emergency credit line from JP Morgan and $1B in emergency funding from their investors. This all happened before these trade restrictions. At the scale we're talking about here, it gets to a point very quickly where nothing can save them except government intervention. Robinhood may not be at that point yet (and I very much doubt the government would step in to help them), but its also the case that their eligibility for huge loans like they need is hurt because the measures they need to take to remain solvent (locking down trades) is also hurting their future revenue (users are concerned and may pull out). That's why liquidity events are so scary; everything just stops, and when you stop a market it sometimes can't ever get going again.

jmalicki 6y ago

Is there any evidence that RH's collateral requirements specifically are increasing? The DTCC typically has a restricted list of specific securities with higher than usual collateral requirements, usually because of volatility - it seems that in RH's case, their use base mostly wants to trade stocks on this restricted list, causing severe issues for RH.