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Even without the user exodus I’d think there’s cause for concern regardless. They’ve said their financial position is stable, yet they’re stopping trades becau
by headmelted 6y ago
Even without the user exodus I’d think there’s cause for concern regardless.
They’ve said their financial position is stable, yet they’re stopping trades because of the volume moving through their clearance system (if I’ve understood what Vlad was saying to Bloomberg correctly, they no longer use an external clearing house).
If it walks like a duck, and it quacks like a duck, then it’s probably a duck. And it’s probably good that it’s walking as it doesn’t sound like there’s a whole lot of liquidity left to swim in.
I worry about this for other massive firms, even leaving the current circus aside. As unlikely as it might seem, what happens if a Schwab or a Fidelity or a Vanguard gets into trouble from some as-yet-unseen event?
- throwaheyy 6y agoI don’t think so. Their settlement collateral deposited with the clearing house is unrelated to their own profit, loss or debt. It’s to cover customer trades in the event of a customer defaulting on settlement. The collateral can be thought of as more like “server capacity”. Their customers’ demand for usage of the collateral exceeded what was available and they had to reject new trades with, continuing the analogy, an HTTP 429. That doesn’t mean that they’re suddenly insolvent.
- headmelted 6y agoI agree this isn’t about Robinhood’s solvency, but it also means they’re essentially unable to execute trades in a way that’s consistent with a free market. Their business requires them to perform this function, and if they can’t do that because they’ve run out of their own money with which to underwrite these trades until settlement, then that’s very much a crisis of liquidity however you slice it (which you can’t because, you know, liquid. Badum-tisch).