4 ms·

They're legitimately experiencing a liquidity crisis right now, and their CEO went on the news and lied about it to the public. I'm out of other explanations; G

by 015a 6y ago

They're legitimately experiencing a liquidity crisis right now, and their CEO went on the news and lied about it to the public. I'm out of other explanations; GM moved 0.7% today, and it has trading restrictions? Are they afraid that people will mistype GME?

noncoml 6y ago
Yeah, looks like they are stuck between a rock and a hard place. On one hand if they don't admit their liquidity problems, people will blame them for playing the HFs game. If they do admit, well.. it's pretty much game over for them. I wouldn't say their CEO lied yesterday. More like he talked a lot without really saying anything.
- 015a 6y ago
  On CNBC yesterday, Vlad's exact words were "No, to be clear, there is no liquidity problem" [1]. I'm willing to accept that it wasn't a total lie yesterday, and the situation has developed. I think we're past the point to where that statement would still be truthful today. [1] https://www.cnbc.com/2021/01/29/robinhood-ceo-vlad-tenev-tapping-credit-lines-proactive-to-help-lift-gamestop-trading-limits.html https://www.cnbc.com/2021/01/29/robinhood-ceo-vlad-tenev-tap...
meowkit 6y ago
Did he lie about it or was just not clear? RH and the other brokerages have said it was capital requirements imposed by the clearing houses, which makes sense given Fidelity and Vanguard were not having this issue. My question is why did the clearing houses make this decision? Whats the risk management logic here?
- viscanti 6y ago
  Apple trades an order of magnitude more per day than any of the stocks that were halted. So why are there no liquidity issues there but there are with the stocks that keep being halted?
  - deleted 6y ago
    [deleted]
  - karmicthreat 6y ago
    Because your collateral requirement can vary based on the stock volatility.
  - tedunangst 6y ago
    GME moved about 2/3 as much as AAPL today.
  - evanpw 6y ago
    On Tuesday, GME traded more volume than any other stock, and that's on a day when the total market volume was much higher than usual (Wednesday is now the all-time record for share volume).
- deleted 6y ago
  [deleted]
- 015a 6y ago
  My guess is that Robinhood's deposits with the DTCC are running dry, so they're charging more to settle any transactions to manage their own risk. Robinhood then locks down a bunch of popular stocks in addition to the volatile ones. In a way, its a tragedy of the commons. It would be both sad and ironic if the only casualty of this black swan event were robinhood. But, they likely still have avenues open to them toward recovery.
- deleted 6y ago
  [deleted]
- lordnacho 6y ago
  Well I don't want to say positive things about financial risk models, but it does make sense that they flash higher risk when the price has moved so much. Basically, if I'm lending you money to buy something and that thing is suddenly moving a whole lot more than it used to, it's prudent to ask for more collateral to cover your potential losses.
- karmicthreat 6y ago
  Because if RH were to collapse the clearing house would be left holding the bag. And clearing houses don't have that kind of money. So DTCC (the main clearing house) going under would stop pretty much all trading in the US. So the clearing house requires 100% collateral for some stocks now instead of up to 5%. RH can't afford that and GME has been eating up 50% of RH daily trades.
  - HenryKissinger 6y ago
    > So DTCC (the main clearing house) going under would stop pretty much all trading in the US. What would be the impact of that on the global financial markets? On the real economy? I think we're going to see some difficult regulations on retail investors in the not too far future.
    - karmicthreat 6y ago
      Realistically? Nobody is going to let DTCC go under, ever. But they don't want to be the one begging for a government bailout either.
  - JMTQp8lwXL 6y ago
    Sounds like clearing houses need more insurance themselves.
- deleted 6y ago
  [deleted]
LatteLazy 6y ago
Forgive my ignorance: what's a liquidity crisis? They use client money for client equity orders so they don't need to front anything right?
- 015a 6y ago
  I have a comment from earlier today on another post that I think is accurate enough: https://news.ycombinator.com/item?id=25958644 https://news.ycombinator.com/item?id=25958644
  - LatteLazy 6y ago
    Thanks! Kudos on the excellent comment. So the root issue is a mix of more users, more trading and more people going long, all of which increase their capital requirements. It makes perfect sense now why Robinhood are having issues now. I’m surprised they haven’t cancelled promotions or delayed letting people use proceeds from sales. Do you know if that’s permitted? I was surprised when they started dicking about with what people could trade. That seemed very suspicious to me. But if they’re worried about new users piling in and all grabbing 1k of GameStop, I can see how only a small bump in users sucks up all their spare cash.
- ajsharp 6y ago
  To kinda tl;dr 015a's comment (which you should read, it's excellent), a liquidity crisis, generally, is when you start running out of cash to settle things that require cash, for various practical and/or regulatory reasons. You might have plenty of other assets on your books, but you're short on cash or cash equivalents. For a brokerage, the T+2 transaction settlement system requires brokers post collateral while a trade is in the process of being settled. T+2 means 2 business days. On top of that Robinhood does all kinds of promotional stuff that's a drain on their cash position like giving away stock to new users.
  - LatteLazy 6y ago
    It is an excellent comment. I learnt a lot! T+2 must prolong the agony. So new users turn up (which costs capital for their promos), deposit money (which drones clear yet), buy something (using more capital), sell it and buy something else because why not lock in those gains (using more capital) and so on. What do brokers do in these cases? It seems like they should have a lender who guarantees capital in the even of volume spikes. It seems like a missed opportunity, I’d lend them cash for a few percent a week :)
tedunangst 6y ago
My friend's uncle said he got a tip that what happened is citadel buys servers from intel who called robinhood on the rico line and told them to kill amd.

by 015a 6y ago

noncoml 6y ago

Yeah, looks like they are stuck between a rock and a hard place. On one hand if they don't admit their liquidity problems, people will blame them for playing the HFs game. If they do admit, well.. it's pretty much game over for them. I wouldn't say their CEO lied yesterday. More like he talked a lot without really saying anything.

015a 6y ago
On CNBC yesterday, Vlad's exact words were "No, to be clear, there is no liquidity problem" [1]. I'm willing to accept that it wasn't a total lie yesterday, and the situation has developed. I think we're past the point to where that statement would still be truthful today. [1] https://www.cnbc.com/2021/01/29/robinhood-ceo-vlad-tenev-tapping-credit-lines-proactive-to-help-lift-gamestop-trading-limits.html https://www.cnbc.com/2021/01/29/robinhood-ceo-vlad-tenev-tap...

meowkit 6y ago

Did he lie about it or was just not clear? RH and the other brokerages have said it was capital requirements imposed by the clearing houses, which makes sense given Fidelity and Vanguard were not having this issue. My question is why did the clearing houses make this decision? Whats the risk management logic here?

viscanti 6y ago
Apple trades an order of magnitude more per day than any of the stocks that were halted. So why are there no liquidity issues there but there are with the stocks that keep being halted?
- deleted 6y ago
  [deleted]
- karmicthreat 6y ago
  Because your collateral requirement can vary based on the stock volatility.
- tedunangst 6y ago
  GME moved about 2/3 as much as AAPL today.
- evanpw 6y ago
  On Tuesday, GME traded more volume than any other stock, and that's on a day when the total market volume was much higher than usual (Wednesday is now the all-time record for share volume).
deleted 6y ago
[deleted]
015a 6y ago
My guess is that Robinhood's deposits with the DTCC are running dry, so they're charging more to settle any transactions to manage their own risk. Robinhood then locks down a bunch of popular stocks in addition to the volatile ones. In a way, its a tragedy of the commons. It would be both sad and ironic if the only casualty of this black swan event were robinhood. But, they likely still have avenues open to them toward recovery.
deleted 6y ago
[deleted]
lordnacho 6y ago
Well I don't want to say positive things about financial risk models, but it does make sense that they flash higher risk when the price has moved so much. Basically, if I'm lending you money to buy something and that thing is suddenly moving a whole lot more than it used to, it's prudent to ask for more collateral to cover your potential losses.
karmicthreat 6y ago
Because if RH were to collapse the clearing house would be left holding the bag. And clearing houses don't have that kind of money. So DTCC (the main clearing house) going under would stop pretty much all trading in the US. So the clearing house requires 100% collateral for some stocks now instead of up to 5%. RH can't afford that and GME has been eating up 50% of RH daily trades.
- HenryKissinger 6y ago
  > So DTCC (the main clearing house) going under would stop pretty much all trading in the US. What would be the impact of that on the global financial markets? On the real economy? I think we're going to see some difficult regulations on retail investors in the not too far future.
  - karmicthreat 6y ago
    Realistically? Nobody is going to let DTCC go under, ever. But they don't want to be the one begging for a government bailout either.
- JMTQp8lwXL 6y ago
  Sounds like clearing houses need more insurance themselves.
deleted 6y ago
[deleted]

LatteLazy 6y ago

Forgive my ignorance: what's a liquidity crisis? They use client money for client equity orders so they don't need to front anything right?

015a 6y ago
I have a comment from earlier today on another post that I think is accurate enough: https://news.ycombinator.com/item?id=25958644 https://news.ycombinator.com/item?id=25958644
- LatteLazy 6y ago
  Thanks! Kudos on the excellent comment. So the root issue is a mix of more users, more trading and more people going long, all of which increase their capital requirements. It makes perfect sense now why Robinhood are having issues now. I’m surprised they haven’t cancelled promotions or delayed letting people use proceeds from sales. Do you know if that’s permitted? I was surprised when they started dicking about with what people could trade. That seemed very suspicious to me. But if they’re worried about new users piling in and all grabbing 1k of GameStop, I can see how only a small bump in users sucks up all their spare cash.
ajsharp 6y ago
To kinda tl;dr 015a's comment (which you should read, it's excellent), a liquidity crisis, generally, is when you start running out of cash to settle things that require cash, for various practical and/or regulatory reasons. You might have plenty of other assets on your books, but you're short on cash or cash equivalents. For a brokerage, the T+2 transaction settlement system requires brokers post collateral while a trade is in the process of being settled. T+2 means 2 business days. On top of that Robinhood does all kinds of promotional stuff that's a drain on their cash position like giving away stock to new users.
- LatteLazy 6y ago
  It is an excellent comment. I learnt a lot! T+2 must prolong the agony. So new users turn up (which costs capital for their promos), deposit money (which drones clear yet), buy something (using more capital), sell it and buy something else because why not lock in those gains (using more capital) and so on. What do brokers do in these cases? It seems like they should have a lender who guarantees capital in the even of volume spikes. It seems like a missed opportunity, I’d lend them cash for a few percent a week :)

tedunangst 6y ago

My friend's uncle said he got a tip that what happened is citadel buys servers from intel who called robinhood on the rico line and told them to kill amd.