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But there is the possibility that Robinhood was also cutting trading to appease Citadel, who to my understanding, just happened to re-engage their short positio

by bmitc 6y ago

But there is the possibility that Robinhood was also cutting trading to appease Citadel, who to my understanding, just happened to re-engage their short positions right before Robinhood cut buying to Gamestop stock. If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.

elliekelly 6y ago
> If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that. Because DTCC requires cash collateral while the transaction is settled whether the transaction happens in a margin account or a cash account. There's no distinction from DTCC's perspective. DTCC (reportedly) increased the collateral on $GME transactions to 100% of the transaction price compared to the typical 1-3% of the price.
- bmitc 6y ago
  Thanks for that information. I didn’t know that or about DTCC. Is raising the collateral on transactions like that typical?
  - gruez 6y ago
    Yes https://twitter.com/kralctrebor/status/1354952686165225478 https://twitter.com/kralctrebor/status/1354952686165225478
MattGaiser 6y ago
Because anyone buying right away after funding an account or selling the same day as buying is buying on margin. Margin is used to make a lot of the "instant" stuff happen. True cash accounts make them difficult to use for the day trading these people like to do. https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https://finance.zacks.com/tax-rules-use-proceeds-stock-sales... https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t...
- gruez 6y ago
  Also they can't use customer funds to fund the deposit, it has to be out of their pocket. https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict... >And we just can't afford-- well, we're not a clearing firm, but our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it.
- bmitc 6y ago
  Right. I get that. But if buying on margin is the problem, block buying on margin. Why block buying when people have the cash already settled in their account as well? Edit: Answered in another chain. https://news.ycombinator.com/item?id=25971718 https://news.ycombinator.com/item?id=25971718
triceratops 6y ago
Maybe Citadel knew about RH's difficulties and timed their moves accordingly. For smart person who knows how RH's model works (I am neither, btw), which I'm sure Citadel employs many of, it wouldn't have been hard to predict.
- alasdair_ 6y ago
  Robinhood sends their order flow to Citadel. Citadel would know before anybody else in the market that the massive number of buy orders from RH had just gone to zero. They would also know that sell orders were still coming in. This would allow Citadel to profit massively on the backs of the RH customers even if there was no direct collusion. The thing is, RH isn’t stupid. They knew that Citadel (their biggest customer) would see that orders went to zero before anyone else and could move accordingly. RH didn’t need to explicitly warn Citadel in advance - the very nature of their relationship meant that they would be told in advance.
  - tptacek 6y ago
    This doesn't make much sense. One way Citadel could have known there was a massive number of buy orders would be to simply read WSB.
    - alasdair_ 6y ago
      WSB didn’t know about RH buy orders going to zero for everyone until at least half an hour after it happened. Citadel knew before anyone else on the market and could act accordingly to short.
  - kasey_junk 6y ago
    And what did Citadel do with that info? Citadel is one of several internalizers Robinhood uses. Each of them got the same data. They are all competitors. Can you explain the actual trade you are suggesting happened?

by bmitc 6y ago

elliekelly 6y ago

> If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that. Because DTCC requires cash collateral while the transaction is settled whether the transaction happens in a margin account or a cash account. There's no distinction from DTCC's perspective. DTCC (reportedly) increased the collateral on $GME transactions to 100% of the transaction price compared to the typical 1-3% of the price.

bmitc 6y ago
Thanks for that information. I didn’t know that or about DTCC. Is raising the collateral on transactions like that typical?
- gruez 6y ago
  Yes https://twitter.com/kralctrebor/status/1354952686165225478 https://twitter.com/kralctrebor/status/1354952686165225478

MattGaiser 6y ago

Because anyone buying right away after funding an account or selling the same day as buying is buying on margin. Margin is used to make a lot of the "instant" stuff happen. True cash accounts make them difficult to use for the day trading these people like to do. https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https://finance.zacks.com/tax-rules-use-proceeds-stock-sales... https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t...

gruez 6y ago
Also they can't use customer funds to fund the deposit, it has to be out of their pocket. https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict... >And we just can't afford-- well, we're not a clearing firm, but our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it.
bmitc 6y ago
Right. I get that. But if buying on margin is the problem, block buying on margin. Why block buying when people have the cash already settled in their account as well? Edit: Answered in another chain. https://news.ycombinator.com/item?id=25971718 https://news.ycombinator.com/item?id=25971718

triceratops 6y ago

Maybe Citadel knew about RH's difficulties and timed their moves accordingly. For smart person who knows how RH's model works (I am neither, btw), which I'm sure Citadel employs many of, it wouldn't have been hard to predict.

alasdair_ 6y ago
Robinhood sends their order flow to Citadel. Citadel would know before anybody else in the market that the massive number of buy orders from RH had just gone to zero. They would also know that sell orders were still coming in. This would allow Citadel to profit massively on the backs of the RH customers even if there was no direct collusion. The thing is, RH isn’t stupid. They knew that Citadel (their biggest customer) would see that orders went to zero before anyone else and could move accordingly. RH didn’t need to explicitly warn Citadel in advance - the very nature of their relationship meant that they would be told in advance.
- tptacek 6y ago
  This doesn't make much sense. One way Citadel could have known there was a massive number of buy orders would be to simply read WSB.
  - alasdair_ 6y ago
    WSB didn’t know about RH buy orders going to zero for everyone until at least half an hour after it happened. Citadel knew before anyone else on the market and could act accordingly to short.
- kasey_junk 6y ago
  And what did Citadel do with that info? Citadel is one of several internalizers Robinhood uses. Each of them got the same data. They are all competitors. Can you explain the actual trade you are suggesting happened?