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If you are operating a brokerage that can't cover when people are buying stock with all cash then you should be in breach and be forced to shut down and/or forc

by pfisch 6y ago

If you are operating a brokerage that can't cover when people are buying stock with all cash then you should be in breach and be forced to shut down and/or forced into bankruptcy by owing all the stockholders of the stocks in question the actual damages you caused them. Your only real job is to operate fair and unbiased bid/ask spreads and execute trades fairly. If you aren't going to do that then you are running a scam on your customers. How is this fundamentally different then you placing a bet at a roulette table and the casino changing the rules mid-spin to make sure you will lose?

tptacek 6y ago
A casino will absolutely shut a machine or a table down whenever the hell they want. I don't understand your argument. RH either has the money to put up collateral or they don't. They didn't this week. That seems like the end of the story. They can't just "choose" to have more cash on hand than they actually have.
kasey_junk 6y ago
I think one thing people are very confused by is the “all cash” part of your sentiment. If you “deposit” money with Robinhood (or any other broker) and can trade it immediately (or any timeframe less than a few days) you are not trading cash. Cash takes days to move from 1 account to another without taking on credit risk. Similarly if you sell shares in 1 symbol and buy shares in another in less of a time frame than a few days you aren’t using cash. You are using credit (because it takes days for sales to settle). All of that credit risk is all currently legislated to go through a few bottlenecks who have the power to enforce their own credit rules. Analogies are dumb but it would be like if Amex called all the casinos and said “everyone has 90% less credit than they did 2 minutes ago”. If you had a roulette ball running based on your previous credit line at Amex you can bet the Casino would grab that ball. Especially if it had 200k Amex lendees in their pits.
- pfisch 6y ago
  In which case I can understand you not being able to buy, because you are buying on margin. That is not what I'm talking about though. I'm talking about 100% cash. If you are trading on margin you can get margin called. If you aren't though your broker has no right to do this kind of stuff. You are suggesting the casino would grab the ball for people who were not using amex. Deeply illegal.
  - kasey_junk 6y ago
    Are you suggesting RH should have only restricted new positions to people that A) hadn’t added new money to their accounts and also B) hadn’t liquidated any other positions in the last 2 days? I suppose you could make that argument and if you wanted to encode that as law I wouldn’t vote against it, but recognize it’s going to manifest in brokerage behavior where you can’t trade as fast or you have to keep more cash in your brokerage account. [edit] I’d also love for you to cite what law a casino would be breaking by shutting down a game mid roll because I have no direct experience there but my mental model is that Casinos have wide latitude on allowing the games to run or not.
    - pfisch 6y ago
      I mean most normal brokerage accounts clearly show you when you are buying on margin and exactly how much settled cash you have to trade with. This is not unreasonable, and as far as I am aware is the status quo.
      - kasey_junk 6y ago
        Both my Vanguard and Fidelity brokerage account lets me immediately trade with funds from trades prior to them settling with the DTCC. I don’t see any indication in their GUI (maybe I’m missing it?) that the trades are anything but complete once the orders are filled.

by pfisch 6y ago

tptacek 6y ago

A casino will absolutely shut a machine or a table down whenever the hell they want. I don't understand your argument. RH either has the money to put up collateral or they don't. They didn't this week. That seems like the end of the story. They can't just "choose" to have more cash on hand than they actually have.

kasey_junk 6y ago

I think one thing people are very confused by is the “all cash” part of your sentiment. If you “deposit” money with Robinhood (or any other broker) and can trade it immediately (or any timeframe less than a few days) you are not trading cash. Cash takes days to move from 1 account to another without taking on credit risk. Similarly if you sell shares in 1 symbol and buy shares in another in less of a time frame than a few days you aren’t using cash. You are using credit (because it takes days for sales to settle). All of that credit risk is all currently legislated to go through a few bottlenecks who have the power to enforce their own credit rules. Analogies are dumb but it would be like if Amex called all the casinos and said “everyone has 90% less credit than they did 2 minutes ago”. If you had a roulette ball running based on your previous credit line at Amex you can bet the Casino would grab that ball. Especially if it had 200k Amex lendees in their pits.

pfisch 6y ago
In which case I can understand you not being able to buy, because you are buying on margin. That is not what I'm talking about though. I'm talking about 100% cash. If you are trading on margin you can get margin called. If you aren't though your broker has no right to do this kind of stuff. You are suggesting the casino would grab the ball for people who were not using amex. Deeply illegal.
- kasey_junk 6y ago
  Are you suggesting RH should have only restricted new positions to people that A) hadn’t added new money to their accounts and also B) hadn’t liquidated any other positions in the last 2 days? I suppose you could make that argument and if you wanted to encode that as law I wouldn’t vote against it, but recognize it’s going to manifest in brokerage behavior where you can’t trade as fast or you have to keep more cash in your brokerage account. [edit] I’d also love for you to cite what law a casino would be breaking by shutting down a game mid roll because I have no direct experience there but my mental model is that Casinos have wide latitude on allowing the games to run or not.
  - pfisch 6y ago
    I mean most normal brokerage accounts clearly show you when you are buying on margin and exactly how much settled cash you have to trade with. This is not unreasonable, and as far as I am aware is the status quo.
    - kasey_junk 6y ago
      Both my Vanguard and Fidelity brokerage account lets me immediately trade with funds from trades prior to them settling with the DTCC. I don’t see any indication in their GUI (maybe I’m missing it?) that the trades are anything but complete once the orders are filled.