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> Hold on here... regardless of "infinite" volatility, the risk of a $300 buy order is at most $300, and when the brokerage is custodian of $300 settled real US

> Hold on here... regardless of "infinite" volatility, the risk of a $300 buy order is at most $300, and when the brokerage is custodian of $300 settled real US dollars in the customer's account, there is no apocalyptic systemic risk. While this does seem true, it appears the DTCC and the law don't care. It's my understanding that if a brokerage defaults on a payment to DTCC even once, it's game over. Brokerage goes out of business overnight. And the law prevents from brokerages from using client cash to make those payments. > I would understand if this were simply a matter of Robinhood tightening margin requirements, but no, they were prohibiting all purchases, even from accounts with plenty of cash, and now we are hearing (not the first story they spun) that this was because of some nonsensical aspect of the DTCC collateral requirements (the buying customer's funds do not count and cannot be used as collateral). This "story" has been said repeatedly, by very reputable sources and even by a direct competitor to Robinhood, long before Robinhood said anything about it. Robinhood is hardly the only brokerage to limit buying - TDA, Merrill, IBKR, and all Apex-cleared brokerages have also done so, though to a lesser extent. I have no love for Robinhood specifically and I frankly think that them going out of business would be a net benefit to retail investors. But I find it very hard to believe that this is a lie that Robinhood has fabricated. Like I said, nothing Robinhood does to restrict margin requirements or require customers to put up cash helps them out of this situation. In the very short term, Robinhood must pay out of their pocket and it seems like they were simply incapable of doing so. > Collateral shortfall would apply to all purchases of all stocks, wouldn't it? Why not cap all purchases? And what exactly were the collateral requirements on GME? DTCC can set collateral requirements per symbol, as far as I understand. So they can jack up the requirements for GME while leaving other stocks untouched. Plus I'd guess most brokerages would rather halt a single symbol than completely shut down business for a whole day. As for what the exact requirements were, we may never know. It doesn't appear to be public information. > Hilarious! This intra-day volatility was caused by the brokerage's actions. Indirectly, maybe? Directly, probably not. Despite what wallstreetbets would have people believe, it seems like retail is not moving GME significantly. The same article shows Citadel's numbers for retail order flow and it's pretty much balanced buying and selling.

bhk 6y ago
I don't know what to believe at this point. IB's CEO Thomas Peterffy said on CNBC that their intent was to protect large market participants, including clearing houses. The article you cited quotes the Webull CEO saying that Apex dictated restrictions on specific stocks. That is at odds with the story that it was just a matter of brokers not being able to meet collateral requirements. One consistent theme seems to be that clearing houses are behind this, and that their restrictions were not dictated by a formula, but were more arbitrary. EDIT: I just found some commentary along these lines... https://twitter.com/KralcTrebor/status/1355175395642003456 https://twitter.com/KralcTrebor/status/1355175395642003456
- millimeterman 6y ago
  > IB's CEO Thomas Peterffy said on CNBC that their intent was to protect large market participants, including clearing houses. This is the same thing I'm talking about, just arguably phrased poorly. If the clearing house is in danger you risk cascading financial failure that endangers everyone, not just people buying GME. Yes that includes large market participants but it also includes Joe Blow holding AAPL or TSLA. There is a conversation worth having about DTCC's potential conflicts of interest, but it seems clear to me that DTCC cannot be allowed to go down. They need to raise collateral requirements, regardless of the PR fallout that small brokerages might face. > The article you cited quotes the WeBull CEO saying that Apex dictated restrictions on specific stocks. That is at odds with the story that it was just a matter of brokers not being able to meet collateral requirements. I think being careful with terminology is important here. WeBull is what's known as an "introducing broker". They deal with clients through their app and such, but they don't really do any of the back-office work. They offload that to a clearing _firm_ called Apex, who ultimately is the one that must post collateral to the clearing _house_ DTCC[1]. According to WeBull's CEO, Apex realized they would be unable to put up the collateral and so called up all the brokerages they work with to tell them that GME would be halted. Robinhood and most larger brokerages such as TDA, Fidelity, and Vanguard are all self-clearing. It's essentially like if WeBull and Apex were the same company. So while technically speaking it was the clearing firm portion that couldn't post collateral, the introducing broker and clearing firm are the same company so people tend to just simplify and say that the brokerage itself couldn't meet collateral requirements. > One consistent theme seems to be that clearing houses are behind this, and that their restrictions were not dictated by a formula, but were more arbitrary. The clearing house (in the US, there's really only one) is definitely behind this, but I don't know that the restrictions were arbitrary. It's pretty standard practice for the DTCC to raise collateral requirements on volatile stocks, and they generally inform clearing firms until the morning that restrictions go into place, giving clearing firms only a few hours to provide additional capital[2]. Whether that's a good standard practice is certainly arguable. 1. See here for the difference between a clearing house and a clearing firm: https://www.money-zine.com/definitions/investing-dictionary/clearing-firm/ https://www.money-zine.com/definitions/investing-dictionary/... 2. See page 49 of https://dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf https://dtcc.com/-/media/Files/Downloads/legal/policy-and-co...

bhk 6y ago

I don't know what to believe at this point. IB's CEO Thomas Peterffy said on CNBC that their intent was to protect large market participants, including clearing houses. The article you cited quotes the Webull CEO saying that Apex dictated restrictions on specific stocks. That is at odds with the story that it was just a matter of brokers not being able to meet collateral requirements. One consistent theme seems to be that clearing houses are behind this, and that their restrictions were not dictated by a formula, but were more arbitrary. EDIT: I just found some commentary along these lines... https://twitter.com/KralcTrebor/status/1355175395642003456 https://twitter.com/KralcTrebor/status/1355175395642003456

millimeterman 6y ago
> IB's CEO Thomas Peterffy said on CNBC that their intent was to protect large market participants, including clearing houses. This is the same thing I'm talking about, just arguably phrased poorly. If the clearing house is in danger you risk cascading financial failure that endangers everyone, not just people buying GME. Yes that includes large market participants but it also includes Joe Blow holding AAPL or TSLA. There is a conversation worth having about DTCC's potential conflicts of interest, but it seems clear to me that DTCC cannot be allowed to go down. They need to raise collateral requirements, regardless of the PR fallout that small brokerages might face. > The article you cited quotes the WeBull CEO saying that Apex dictated restrictions on specific stocks. That is at odds with the story that it was just a matter of brokers not being able to meet collateral requirements. I think being careful with terminology is important here. WeBull is what's known as an "introducing broker". They deal with clients through their app and such, but they don't really do any of the back-office work. They offload that to a clearing _firm_ called Apex, who ultimately is the one that must post collateral to the clearing _house_ DTCC[1]. According to WeBull's CEO, Apex realized they would be unable to put up the collateral and so called up all the brokerages they work with to tell them that GME would be halted. Robinhood and most larger brokerages such as TDA, Fidelity, and Vanguard are all self-clearing. It's essentially like if WeBull and Apex were the same company. So while technically speaking it was the clearing firm portion that couldn't post collateral, the introducing broker and clearing firm are the same company so people tend to just simplify and say that the brokerage itself couldn't meet collateral requirements. > One consistent theme seems to be that clearing houses are behind this, and that their restrictions were not dictated by a formula, but were more arbitrary. The clearing house (in the US, there's really only one) is definitely behind this, but I don't know that the restrictions were arbitrary. It's pretty standard practice for the DTCC to raise collateral requirements on volatile stocks, and they generally inform clearing firms until the morning that restrictions go into place, giving clearing firms only a few hours to provide additional capital[2]. Whether that's a good standard practice is certainly arguable. 1. See here for the difference between a clearing house and a clearing firm: https://www.money-zine.com/definitions/investing-dictionary/clearing-firm/ https://www.money-zine.com/definitions/investing-dictionary/... 2. See page 49 of https://dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf https://dtcc.com/-/media/Files/Downloads/legal/policy-and-co...