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I saw the Interactive Brokers interview [0] and his explanation actually made a lot of sense to me (I don't know about Robinhood other than it has had many prev

I saw the Interactive Brokers interview [0] and his explanation actually made a lot of sense to me (I don't know about Robinhood other than it has had many previous problems). He said that they were worried about counterparty risk. They are only taking one side of a trade (on behalf of their customers) and depend on the other side to make good on their promise. In this environment they are not certain that the other side can deliver on (for example) certain GameStop options trades, and they don't want to be stuck holding the bag. When the interviewer asked about customers being angry about the rules changing "in the middle of the game", he said he viewed the game as market manipulation, which is illegal. But isn't he correct? Jeff Bezos or Bill Gates could almost certainly achieve what the Reddit mob is doing and engineer a short squeeze. But how would that not be market manipulation? Probably almost no Redditors believe the long term value of GameStop is $350, market manipulation is the whole point, the new part is that it's crowdsourced. IMO both of his explanations are extremely reasonable. But if you look at the comments on the video (and on Reddit), the take away is overwhelmingly, "he is so honest about the fraud", "He should be in a jail cell", that he is covering up insolvency, etc (just look at the linked video, it's not just one or two comments). This one interview probably isn't a huge deal in the big scheme of things, but I think it's very illustrative of a larger trend. It seems like the level of distrust in our society is so high (particularly towards our institutions) that, increasingly, straightforward explanations for things are rejected in favor of conspiracies. And once we are at this point, it is hard to see how it doesn't only accelerate. After all, believing one thing happened just makes the anger increase and believing the next one even more plausible. People will inevitably lose their shirt buying GameStop at $350 a share (when it's only been worth <$15 for years) then blame the whole system being "rigged" against them. The number of people who want to burn it all down is only increasing and it makes it hard to be optimistic about the future. [0] https://www.youtube.com/watch?v=7RH4XKP55fM https://www.youtube.com/watch?v=7RH4XKP55fM

psychlops 6y ago
Very well thought out, thank you for taking the time to reply. Indeed his explanation makes sense in a certain context. However, if he shut it down because it was illegal, then he needs no other explanation. Consider that his primary explanation, the first thing he says is that he's worried about the clearing system. Not the legality...this raises an eyebrow. Not saying he's wrong, just that framed in the context of deep-pocketed, connected market players losing money then he'd better be pretty damned specific. Like you, I won't bother to dignify the comments on the video. There is a mob with pitchforks out there. The ending will not be pretty and the repercussions will be felt for a long time.
matttb 6y ago
Here's a longer clip btw: https://www.youtube.com/watch?v=R6ibh06A-Mw https://www.youtube.com/watch?v=R6ibh06A-Mw The idea that what is happening is illegal market manipulation is kind of ridiculous to me since it's not really any different than anyone (including shorts) going on CNBC and talking about why you should buy X stock
nrmitchi 6y ago
> But isn't he correct? Jeff Bezos or Bill Gates could almost certainly achieve what the Reddit mob is doing and engineer a short squeeze. But how would that not be market manipulation? So I actually spent a bunch of time thinking about this the other day, and came to the conclusion that yes, either of them could easily do the same thing to a small-cap stock all by themselves. There are a couple differences though. First, as soon as they control 5%, they would have to report. This would likely start making it more difficult for them to acquire additional shares), and they would have reporting requirements. This doesn't apply to a group of small individuals. Second, even if they could, what is the point? They bid up the stock, completely corner the market, and then what? *They would have no exit plan.* If they just start selling, the price will start dropping again. At the end, they'd end up in a similar position to where they started (minus transaction fees). If they planned to keep the entire company, and were buying it to control it, it would be cheaper to just acquire the company the traditional way ("hostile takeover" type acquisions not-withstanding) For what it's worth, I think this logic applies to hedge funds as well; they need to have an exit strategy, or there is no benefit. They can't make money for some of their investors, and lose money for others. This is different than the current WSB group. Their exit strategy is "try to undercut the rest of the group". Some of the group will benefit, while most will lose. This leaves an actual benefit for the leader. > The number of people who want to burn it all down is only increasing and it makes it hard to be optimistic about the future. It may seem rather tin-foil hat of me to say, but seeing reports of large amounts of foreign money piling in to the GME situation definitely made me consider how this would be yet another time that a relatively small amount of money could do a lot to destabilize the country.
PhantomGremlin 6y ago
He said that they were worried about counterparty risk. Peterffy is a brilliant guy. You've got to respect anyone who is a self-made billionaire. But I thought he did a bad job expressing himself in this interview. IMO he should have clearly separated stocks and options at the very beginning, and he should have stressed the difference between them. The counterparty risk is higher in options. A lot of the Robinhood crowd is/was playing by owning call options. If professional option market makers step away (which, in my limited study of the market they did), then the only way to make money on an in-the-money option is to exercise. But the risk is huge on a stock that is so volatile. And most of the Robinhood crowd that owned those call options most likely didn't have the cash needed to exercise. Peterffy is right that being a counterparty to Robinhood was risky. As proven by Robinhood needing to raise $1 billion in capital on an emergency basis. Of course everything gets even more complicated as soon as the DTCC starts increasing margin requirements. They probably demanded 100% (instead of more typical 2%) on GME stock. Oh shit! Now the stock itself is very hard to trade. So much capital required. Peterffy should have explained stuff like that. But that's probably hard to do when the CNBC anchors are asking loaded basic questions.

psychlops 6y ago

Very well thought out, thank you for taking the time to reply. Indeed his explanation makes sense in a certain context. However, if he shut it down because it was illegal, then he needs no other explanation. Consider that his primary explanation, the first thing he says is that he's worried about the clearing system. Not the legality...this raises an eyebrow. Not saying he's wrong, just that framed in the context of deep-pocketed, connected market players losing money then he'd better be pretty damned specific. Like you, I won't bother to dignify the comments on the video. There is a mob with pitchforks out there. The ending will not be pretty and the repercussions will be felt for a long time.

matttb 6y ago

Here's a longer clip btw: https://www.youtube.com/watch?v=R6ibh06A-Mw https://www.youtube.com/watch?v=R6ibh06A-Mw The idea that what is happening is illegal market manipulation is kind of ridiculous to me since it's not really any different than anyone (including shorts) going on CNBC and talking about why you should buy X stock

nrmitchi 6y ago

> But isn't he correct? Jeff Bezos or Bill Gates could almost certainly achieve what the Reddit mob is doing and engineer a short squeeze. But how would that not be market manipulation? So I actually spent a bunch of time thinking about this the other day, and came to the conclusion that yes, either of them could easily do the same thing to a small-cap stock all by themselves. There are a couple differences though. First, as soon as they control 5%, they would have to report. This would likely start making it more difficult for them to acquire additional shares), and they would have reporting requirements. This doesn't apply to a group of small individuals. Second, even if they could, what is the point? They bid up the stock, completely corner the market, and then what? *They would have no exit plan.* If they just start selling, the price will start dropping again. At the end, they'd end up in a similar position to where they started (minus transaction fees). If they planned to keep the entire company, and were buying it to control it, it would be cheaper to just acquire the company the traditional way ("hostile takeover" type acquisions not-withstanding) For what it's worth, I think this logic applies to hedge funds as well; they need to have an exit strategy, or there is no benefit. They can't make money for some of their investors, and lose money for others. This is different than the current WSB group. Their exit strategy is "try to undercut the rest of the group". Some of the group will benefit, while most will lose. This leaves an actual benefit for the leader. > The number of people who want to burn it all down is only increasing and it makes it hard to be optimistic about the future. It may seem rather tin-foil hat of me to say, but seeing reports of large amounts of foreign money piling in to the GME situation definitely made me consider how this would be yet another time that a relatively small amount of money could do a lot to destabilize the country.

PhantomGremlin 6y ago

He said that they were worried about counterparty risk. Peterffy is a brilliant guy. You've got to respect anyone who is a self-made billionaire. But I thought he did a bad job expressing himself in this interview. IMO he should have clearly separated stocks and options at the very beginning, and he should have stressed the difference between them. The counterparty risk is higher in options. A lot of the Robinhood crowd is/was playing by owning call options. If professional option market makers step away (which, in my limited study of the market they did), then the only way to make money on an in-the-money option is to exercise. But the risk is huge on a stock that is so volatile. And most of the Robinhood crowd that owned those call options most likely didn't have the cash needed to exercise. Peterffy is right that being a counterparty to Robinhood was risky. As proven by Robinhood needing to raise $1 billion in capital on an emergency basis. Of course everything gets even more complicated as soon as the DTCC starts increasing margin requirements. They probably demanded 100% (instead of more typical 2%) on GME stock. Oh shit! Now the stock itself is very hard to trade. So much capital required. Peterffy should have explained stuff like that. But that's probably hard to do when the CNBC anchors are asking loaded basic questions.