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Totally right, and furthermore, Robinhood is facing some serious solvency issues. Their PR releases claiming this was clearing house related was already highly

Totally right, and furthermore, Robinhood is facing some serious solvency issues. Their PR releases claiming this was clearing house related was already highly dubious, and is self-contradicting because they are blaming it on a liquidity issue while saying it's not a liquidity issue. But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their general solvency but ability to execute trades. This could easily cause a feedback loop that empties their accounts, at which point people are going to be unable to withdraw their cash which is goign to cause a bank run and drill the nails into their coffin even further. Healthy companies don't need to emergency borrow a billion dollars. If you have less than $250,000 on Robinhood, your account is FDIC insured so you'll eventually get your money back...but I think most people would prefer not to go through that process. Robinhood is on a death spiral and prudent financial advice is to move any assets you have off of it as soon as possible.

quercusa 6y ago
FDIC is for banks. SIPC (of which RH is a member) is for brokerage houses. https://www.sipc.org/about-sipc/ https://www.sipc.org/about-sipc/
- deleted 6y ago
  [deleted]
doanerock 6y ago
"250,000 on Robinhood, your account is FDIC insured" That is only for the cash on hand, the securities are covered by SIPC.
JMTQp8lwXL 6y ago
The solvency issue is the root cause leading me to leave Robinhood personally. The limitation on market orders was the symptom; the cause was a rotten core. This is the true reason why everyone should leave Robinhood. I do not want to deal with realizing FDIC/SIPC insurance preferably ever in my lifetime.
- o-__-o 6y ago
  You dealt with it when you eg had a Wachovia bank account before they became Wells Fargo. You saw it happen en masse in 2008. FDIC guarantees funds to the bank. If the bank fails FDIC ensures YOU continue to access your account. If this means taking the bank into receivership and changing owners so be it. You can go to the FDIC website to see what banks have failed. Many do over the course of a year but the account owners are never at risk outside of the insurance amount on a single deposit account. I hope you don’t keep more than 250,000 in an fdic insured account without additional insurance (which is silly because you could just open another account at the institution for additional coverage)
sgregnt 6y ago
This is tangential to RH, but never the less related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations? What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent? I found it difficult to understand the intricacies related to this question. Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price... What mechanism are there in place to insure that ETF will not deviate from the underlying stock?
- birdsbirdsbirds 6y ago
  They are liquidated once the deviation is too big.
- maest 6y ago
  Each ETF share is backed by a unit of the underlying, so there's no price risk for the ETF issuer.
  - birdsbirdsbirds 6y ago
    There are two kinds of ETF. Only one of them is operated like that. Check the fine print to be sure.
- toast0 6y ago
  An investment in an ETF or other mutual fund is putting your money in the hands of the managers of the fund. They set out objectives for the fund, but they don't necessarily have an obligation to meet those objectives or to keep the same objectives. They can change the objectives within the processes required by the bylaws of the fund. Most of the objectives will have weasel words for management discretion in case of volatile markets. They have quarterly reporting obligations, and you can review those reports to see how they're doing. If you don't like what you see, you can sell the funds and/or file a shareholders' lawsuit and/or file a SEC complaint. If you don't like that, the good news is with zero comissions as the norm, and fractional shares at many brokerages, you could build up your portfolio to match an index of your choice, without significant monetary transaction costs. It would take a lot of time to setup and when you made contributions, and dividend processing effort could be significant.
toast0 6y ago
> Healthy companies don't need to emergency borrow a billion dollars. Sure, move your holdings out of RH. I don't have an account there, and never had, and probably won't ever. But, regardless of RH's health or lack thereof, most companies don't have a sudden change in collateral requirements. If what I understand from forum posts and twitter threads and youtube interviews or CEOs on speakerphone is accurate, On thursday morning, DTCC changed requirements so that net buy orders for GME pending settlement would need to have 100% of the value of the shares posted as collateral (marked to market at end of day). I don't know what the requirement was on Wednesday, apparently 1-2% is common, but I'd hope it was already elevated earlier in the week. And that colateral has to be owned by the clearing firm (which is RH for RH), and apparently can't be formed from clients' money, possibly including settled cash from the clients who made the buy? This isn't a long term cash need, it's only while there's a large amount of net buys in volatile stocks awaiting settlement. Assuming either clients stop buying so much (because some are selling, or it gets borint) after a while or the price stops moving so quickly, collateral requirements should go back down and RH can return the money. As long as their clients don't stiff them on the buys anyway. That they were able to quickly get a billion dollars hints toward fine enough health (or crazy lenders). More worrisome is that they apparently didn't have a plan for managing trading in stocks with high collateral requirements (some established brokerages had enough collateral to do nothing, others limited trading to settled cash and similar trades with reduced credit risk for the brokerage). I don't necessarily expect an upstart brokerage to have unlimited collateral, but planning and managing around insufficient collateral should have been done; and more transparency would be nice. Maybe they had done some planning though, I certainly wouldn't be able to get a $1 B loan in a single day, although who knows what it cost them.

quercusa 6y ago

FDIC is for banks. SIPC (of which RH is a member) is for brokerage houses. https://www.sipc.org/about-sipc/ https://www.sipc.org/about-sipc/

deleted 6y ago
[deleted]

doanerock 6y ago

"250,000 on Robinhood, your account is FDIC insured" That is only for the cash on hand, the securities are covered by SIPC.

JMTQp8lwXL 6y ago

The solvency issue is the root cause leading me to leave Robinhood personally. The limitation on market orders was the symptom; the cause was a rotten core. This is the true reason why everyone should leave Robinhood. I do not want to deal with realizing FDIC/SIPC insurance preferably ever in my lifetime.

o-__-o 6y ago
You dealt with it when you eg had a Wachovia bank account before they became Wells Fargo. You saw it happen en masse in 2008. FDIC guarantees funds to the bank. If the bank fails FDIC ensures YOU continue to access your account. If this means taking the bank into receivership and changing owners so be it. You can go to the FDIC website to see what banks have failed. Many do over the course of a year but the account owners are never at risk outside of the insurance amount on a single deposit account. I hope you don’t keep more than 250,000 in an fdic insured account without additional insurance (which is silly because you could just open another account at the institution for additional coverage)

sgregnt 6y ago

This is tangential to RH, but never the less related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations? What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent? I found it difficult to understand the intricacies related to this question. Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price... What mechanism are there in place to insure that ETF will not deviate from the underlying stock?

birdsbirdsbirds 6y ago
They are liquidated once the deviation is too big.
maest 6y ago
Each ETF share is backed by a unit of the underlying, so there's no price risk for the ETF issuer.
- birdsbirdsbirds 6y ago
  There are two kinds of ETF. Only one of them is operated like that. Check the fine print to be sure.
toast0 6y ago
An investment in an ETF or other mutual fund is putting your money in the hands of the managers of the fund. They set out objectives for the fund, but they don't necessarily have an obligation to meet those objectives or to keep the same objectives. They can change the objectives within the processes required by the bylaws of the fund. Most of the objectives will have weasel words for management discretion in case of volatile markets. They have quarterly reporting obligations, and you can review those reports to see how they're doing. If you don't like what you see, you can sell the funds and/or file a shareholders' lawsuit and/or file a SEC complaint. If you don't like that, the good news is with zero comissions as the norm, and fractional shares at many brokerages, you could build up your portfolio to match an index of your choice, without significant monetary transaction costs. It would take a lot of time to setup and when you made contributions, and dividend processing effort could be significant.

toast0 6y ago

> Healthy companies don't need to emergency borrow a billion dollars. Sure, move your holdings out of RH. I don't have an account there, and never had, and probably won't ever. But, regardless of RH's health or lack thereof, most companies don't have a sudden change in collateral requirements. If what I understand from forum posts and twitter threads and youtube interviews or CEOs on speakerphone is accurate, On thursday morning, DTCC changed requirements so that net buy orders for GME pending settlement would need to have 100% of the value of the shares posted as collateral (marked to market at end of day). I don't know what the requirement was on Wednesday, apparently 1-2% is common, but I'd hope it was already elevated earlier in the week. And that colateral has to be owned by the clearing firm (which is RH for RH), and apparently can't be formed from clients' money, possibly including settled cash from the clients who made the buy? This isn't a long term cash need, it's only while there's a large amount of net buys in volatile stocks awaiting settlement. Assuming either clients stop buying so much (because some are selling, or it gets borint) after a while or the price stops moving so quickly, collateral requirements should go back down and RH can return the money. As long as their clients don't stiff them on the buys anyway. That they were able to quickly get a billion dollars hints toward fine enough health (or crazy lenders). More worrisome is that they apparently didn't have a plan for managing trading in stocks with high collateral requirements (some established brokerages had enough collateral to do nothing, others limited trading to settled cash and similar trades with reduced credit risk for the brokerage). I don't necessarily expect an upstart brokerage to have unlimited collateral, but planning and managing around insufficient collateral should have been done; and more transparency would be nice. Maybe they had done some planning though, I certainly wouldn't be able to get a $1 B loan in a single day, although who knows what it cost them.