27 ms·

Why Robinhood disabled buys but not sells

• hntrader 6y ago
  RH say they scrambled to organise necessary credit lines in response to new DTCC requirements. Well why weren't they in place by Monday, Tuesday or Wednesday in the expectation that DTCC would increase these requirements? Volumes were already exploding with many days of advanced warning and IVs already approaching the hundreds of percent. There's a plausible alternative that RH is not being entirely truthful, and purposely didn't organise the required lines in order to satisfy their biggest customer, so they had a legal way to restrict trading. I don't have evidence that this is true, but nor would I expect to have this evidence at this early point in time. I believe RH's explanation is probably the truthful one (Hanlon's Razor), but some scepticism is warranted.
  • ben_w 6y ago
    I know literally nothing about the legal landscape here. Are they allowed to be dishonest or even misleading in PR statements on topics like this? (I’m thinking of how much trouble Musk got in for “420”).
    • TheAnswerMan 6y ago
      What if I told you people break the law and are dishonest?
      • ben_w 6y ago
        I would reply that I am a Bayesian rationalist not a Boolean rationalist.
    • contravariant 6y ago
      I'm not aware of any specific restrictions on PR statements so I guess they're allowed to be as (dis)honest as any company is allowed to be.
    • alisonkisk 6y ago
      Yes, they are, as you can most easily see because Musk getting "punished" didn't stop him from continuing to break securities law on Twitter. The punishments are smaller than the benefits. I'm not saying Robinhood was breaking the law or lying here though. At any rate, hostile questions on cable TV are not official sworn statements under Sarvanes-Oxley or court hearings. It's unfair and inappropriate to hold someone to a standard of perfection in live hostile questioning on TV.
    • josefx 6y ago
      > (I’m thinking of how much trouble Musk got in for “420”). Yes, trouble, the kind he could just walk of. Some people also call that the cost of doing business.
    • mehlmao 6y ago
      Tesla is publicly traded, which is why the SEC took action. Robinhood was looking to go public, but hasn't done so yet.
  • jrd259 6y ago
    So you accuse the author of bad faith or at best laziness or gullibility. You are now obligated to provide superior explanation of the trading regulations, not just call names.
    • hntrader 6y ago
      I tuned down the rhetoric a bit as that's not how I wished it to come off. I think the article is very good actually, I just wanted to introduce some scepticism regarding the PR explanation we're getting at the moment (and there might be something I'm overlooking that debunks what I've said, very possible).
  • tptacek 6y ago
    The article you just read points out all the other brokerages that had to do the same thing Robinhood did.
    • xiphias2 6y ago
      WeBull CEO said that their situation was very different, as Robinhood is self clearing and they are not. They were told to stop trading. So the situation is not as simple.
      • stu2b50 6y ago
        While it's true that Robinhood has its own clearing firm, Robinhood securities is a NTCC member and is perusant to the same deposit requirements as everyone else. Just as Apex clearing had to raise capital deposits, so did Robinhood securities. That they own the firm just means they wouldn't pay the clearing fee in return for funding the clearing firm.
    • franklampard 6y ago
      And they are no longer restricting
  • karagenit 6y ago
    I guess it's possible there is some sort of conspiracy going on, but I always like to remember "never attribute to malice that which can be adequately explained by stupidity."
    • Leparamour 6y ago
      Why not both?
    • mdoms 6y ago
      I don't apply Hanlon's Razor when there are billions of insider dollars at stake.
  • jrmg 6y ago
    > but some scepticism is definitely warranted What’s the alternate explanation in which RH is being nefarious? Why would they want to stop buys?
    • hntrader 6y ago
      The conspiracy theory is that they restricted trading in order to crash the GME price, thereby benefiting Citadel. There seems to be a "legal" way they could've done this, which is failing to be sufficiently capitalized for when the DTCC reqs change. Hanlon's Razor and all, I fully agree, so I think this isn't the most likely explanation, but I don't think the prior for it is that low either.
      • franklampard 6y ago
        I wouldn’t dismiss that theory as conspiracy theory, given Steven cohen’s history of convictions.
        • hntrader 6y ago
          To be fair, that's not pertaining to Citadel (which RH sells flow to) but to Point72, a different backer of Melvin Capital
    • totalZero 6y ago
      A bunch of rich people from whom Robinhood takes payment for order flow stood to lose money if shorts continued to squeeze quickly, and selling pressure from spooked longs provides an offer to shorts who need to cover.
  • user3939382 6y ago
    This is my leading theory. It's called "plausible deniability". When billions of dollars are at stake I don't believe in coincidence, especially not when they moved in the direction of megapowerful people that includes a guy convicted for insider trading.
    • therealdrag0 6y ago
      Aren’t there mega powerful people on both sides?
      • user3939382 6y ago
        As far as I can see you have Citadel on the short side hemorrhaging cash. On the long side you have mutual funds like Blackrock, but they can’t close their position, and they’re making money lending their shares. I don’t see a Citadel-sized institutional interest and influence on the long side. Only retail investors would go all in on a stock trading at 20x earnings or whatever it is. We have congressional corruption on the record for 6 figure payments. Billions at stake at Citadel can get a percentage changed on a risk management formula used for liquidity requirements at DTC, especially when they can easily justify it. Like I said, plausible deniability. If you disagree maybe you haven’t personally witnessed the levels of institutional corruption I have.
        • user3939382 6y ago
          Having read this, this also sounds like a plausible explanation: https://old.reddit.com/r/wallstreetbets/comments/lanf94/gme_is_a_time_bomb_and_its_highlighting_a_severe/ https://old.reddit.com/r/wallstreetbets/comments/lanf94/gme_... How I am interpreting this is that reddit's bet was too right -- these hedge funds were so exposed, and the momentum was building so fast against them, that it was about to create a liquidity problem that could threaten the stability of the entire market.
• platz 6y ago
  > While others only halted options > - Interactive False, IB halted buys of GME stock even with 100% available cash funds
• hikerclimber 6y ago
  50% of options trading is complete lucky. with robinhood they are trying to reduce this.
• leaferino 6y ago
  http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm... While I'm wary of Robinhood and their reasoning I can believe it as they're a new company, but I can also believe that the DTCC is involved in all this.
  • kilroy123 6y ago
    Terrifying if true.
  • realmod 6y ago
    Naked shorts are already illegal, so if that happened Im pretty sure that they will all face severe repercussions. But the 140% short interest is very misleading and points to naked shorts even though the excessive short interest can explained without them.
• xiphias2 6y ago
  ,,Robinhood legally could not submit trades on $GME until they could muster the deposits for GME that they needed. '' This sounds like a liquidity issue, but Robinhood's CEO said in the interview that there was no liquidity issue. The why doesn't matter at this point because Robinhood CEO was caught lying by contradicting himself.
  • PragmaticPulp 6y ago
    It's clear that Robinhood's comms approach was to avoid a bank run. They raised a billion dollars of emergency investment later that day and also drew down their credit lines. He may have been trying to say that they had plenty of money coming, but it wasn't available at the right time. Their comms approach is the type of PR disaster that will be studied for years to come.
    • xiphias2 6y ago
      It's funny that people were angry for Robinhood not allowing buying new options while Robinhood was afraid of just the opposite: everybody cashing out.
    • skybrian 6y ago
      It's not exactly like a bank run in that there doesn't seem to be any question of solvency once trading is stopped. Customers could always get their money out. It's more like a denial-of-service attack. Customer orders take server-side resources to execute. Except that the server resources taken up are literally money, and execution takes days. Blocking orders fixes the problem. They didn't allocate enough server resources (money) to execute all requests under extreme load. Customer money is a separate pool, not used for execution.
    • jmcqk6 6y ago
      >They raised a billion dollars of emergency investment later that day Kind of unrelated, but I think if "wall street" was really upset regarding what RH is doing, this wouldn't have been possible.
  • paulgb 6y ago
• PragmaticPulp 6y ago
  Everyone assuming a conspiracy theory needs to read this. Keep in mind that Robinhood also gives everyone a margin account by default. They also let people invest on margin before their inbound bank transfers arrive (Robinhood Instant). The influx of new traders sending money to Robinhood or selling other stocks to buy GME quickly drained their credit lines, reducing the capital they had available for collateral. Keep in mind that when someone sells a different stock to buy GME in the same day, they're buying GME on margin. Stock trades don't settle until T+2, so any new purchases using those proceeds are done on margin. This was a capital crunch at Robinhood due to an unexpected herd of new traders all looking to do the same thing in unison. It violated the assumptions of their business model, and the only way to keep the platform from grinding to insolvency (or violating regulations) was to slow down the unexpected event by slowing meme stock purchases. Is it really so hard to believe that such an unprecedented mass movement would break the underlying business assumptions of a pre-IPO startup that was heavily dependent on their credit lines? The biggest problem is Robinhood's poor messaging. It's clear their highest priority was to avoid admission that they were running out of money. They didn't want to trigger a bank run or shake the confidence of their newly acquired users, so they tried to obscure the message as much as possible. As a result, the popular narrative assumed some sort of evil conspiracy theory.
  • ac2u 6y ago
    >Everyone assuming a conspiracy theory needs to read this. I'm not sure of your point here. Anyone that assumed there's a conspiracy theory is pretty much right. Now, if you mean the 'Brokerage X is in cahoots with this particular hedge fund theory', then yes, it's fair to argue that's debunked. But the overall conspiracy theory of "there are forces conspiring against the natural supply/demand market forces", well, they've pretty much all had the nerve to come out in the open and admit it. It's not the stockholders fault that all these clearing intermediaries use shitty fragile risk models that haven't accounted for rare events and instead of facing the music they've artificially turned the marketplace for these stocks into sell-only in order to stop a further price rise and exposing themselves further. To be clear, the rest of your comment seems that we're in agreement, expect that I would go further to call a spade a spade, it's absolutely a conspiracy.
• huehehue 6y ago
  No mention of fractional share mechanics. Anyone have info on how those work? I see claims floating around of $2k/share trades, but only on fractional share sells. I wonder if people are confusing a real squeeze with Robinhood burning money to piece together whole shares.
  • SpicyLemonZest 6y ago
    Fractional shares are an accounting convention within the accounts of individual brokers such as Robinhood, giving multiple customers a partial claim on a unit of stock the broker holds. They're never tradeable on the actual exchange.
• modeitsch 6y ago
  I want to switch off from Robinhood which alternative are you recommending ?
  • hikerclimber 6y ago
    vanguard or fidelity.
  • alecco 6y ago
    Whatever you pick, remember to transfer instead of selling. But it might take days to happen. Maybe even weeks with current RH situation.
    • totalZero 6y ago
      Actually, if you sell you don't have to wait so long. And you don't have to pay $75 in fees to RH. Why would you prefer to transfer? Just hit the bid and move the cash IMO. EDIT: wasn't thinking about the tax implications for those who intend to carry positions greater than a year.
      • 8b16380d 6y ago
        Tax implications probably
        • deleted 6y ago
          [deleted]
      • reducesuffering 6y ago
        After this bull market, you'd have to have only $1,000 in the account to make the taxes less than the $75 fee...
• anonuser123456 6y ago
  Look, I’m tired of these complicated explanations that let fat cats off the hook. I’m here to be angry and will reject any evidence that doesn’t fit my narrative. It’s very clear that Robinhood colluded with Citadel and Melvin capital to help stop me participating in a massive distributed market manipulation scheme. I know this, because this is how hedge funds work; they always work together to stock it to the little guy. You would know this too if you read /r/politics. If it were not for Robinhood, I would definitely be rich or the moon right now. I’m a sophisticated trader and definitely not a stupid money bag holder sitting at the bottom of a huge pyramid scheme.
  • cm2187 6y ago
    ...while I make fun of those gullible Trump supporters who believe wild conspiracy theories.
    • anonuser123456 6y ago
      And this is actually the deeper point to my commentary. People, all people, behave this way. They have their priors and seek evidence supporting said priors and work to discredit evidence that contradicts their belief. And this phenomena is just as pervasive on the left as the right. The WSB phenomena is a perfect example because it crosses ideological boundaries and doesn’t fit within the current political polarization. It’s not right vs. left; it’s elite vs. the masses.
  • akoolkukumber 6y ago
    how much did Melvin pay you to say this? lmfao stay mad, GME to the moon.
  • deleted 6y ago
    [deleted]
  • alisonkisk 6y ago
    Please don't post drivel, even sarcastically. It's still drivel, which is spam, even if you say you disagree with the substance of it.
• tempsy 6y ago
  This doesn’t explain why the list of restrictions on buying expanded to 50 stocks, including low volatility stocks like Starbucks which is now limited to just 1 share.
  • totalZero 6y ago
    Lol that's because it's speculation and backwards rationalization. I'm sure they will eventually update the apologetics to somehow address the low-volatility instruments as well.
• totalZero 6y ago
  I don't buy the suggestion that DTCC deposit requirements left Robinhood and other brokers unable to facilitate all transactions. It is a backwards rationalization, trying to put technical reasons to a fear-driven decision. First of all, they limited opening trades for all accounts, not just accounts buying on margin or with unsettled funds. If you have a cash account and you buy a stock, your broker has plenty of time (2days) and plenty of funds (all of them) to clear your trade. Secondly, many brokerages only blocked options transactions. These don't clear through DTCC at all. They clear through OCC and net purchases of options actually capitalize the clearinghouse and can in some cases actually be advantageous to the broker by getting their accounts long premium (if the broker is net short premium, the OCC charges them more). It's more likely that the brokerages didn't have enough staff to reconcile the trades, or that Robinhood's fake margin accounts (Robinhood Instant) left them in a position where they had to choose between telling people that they have to wait for funds to settle, or limiting trades. Any brokerage that limits trading in an asset for which the exchanges and clearinghouses are functional is harming its customers by preventing their market access. Weird hand-wavey apologetics about the DTCC or OCC don't explain why the retail brokerages had to limit trading in cash accounts.
  • stu2b50 6y ago
    Brokers are not allowed to touch client money to submit the deposit. That the purchases are settled cash on the user's account makes no difference, because none of that money Robinhood could use to clear the deposit.
    • zaroth 6y ago
      But it’s not client money the second the trade executes?
      • tptacek 6y ago
        At what point does the client's money belong to Robinhood? You're not buying stocks from Robinhood.
• hahajk 6y ago
  Yes, we know capital requirements go up, but they cut off buying even for those with sufficient money in their accounts. Money that was transferred from a user bank account and now (I assume) exists in a RH-controlled account. So if RH needed the funds they didn’t they use the money users already sent them? The Webull CEO made an offhand comment “we couldn’t use funds from our users’ accounts due to regulatory restrictions.” I haven’t found what restrictions those are (so if you know, thank you for sharing!) I’m guessing the money in user accounts isn’t actually held as liquid cash. I bet they lend it out like a bank which means a 1000% increase in liquidity requirements meant a leveraged bank-run situation.
  • stu2b50 6y ago
    Brokers can't use client money to make the deposit.
    • tzs 6y ago
      I know almost nothing about buying/selling stock and brokers. (With two exceptions [1], all my investments have been the "buy shares of a mutual fund and hold it forever except for occasional exchanges with other funds I'm going to hold forever, or when I need to make a big purchase like a new car" kind of investments). Thus, I'm quite confused here. What is this "deposit" in this case? Could someone walk through what happens in this case: I have $X at my cash account at a broker, and I direct that broker to buy something that will cost $Y (including any broker fees, commissions, required tax withholding, etc.), where Y <= X. I presume that ultimately I end up wit the thing I wanted to buy, and my cash account ends up with $(X-Y)? So what happens as a step along the road to making that happen that requires the broker to use money that is not money from my cash account? [1] In 1998 or 1999, the newsreader I used on Red Hat started corrupting my .newsrc after an update. I tracked it down to a change in one of the ctype macros in the C standard library. The newsreader assumed that all the flags fit in a char, which had been true before the update, but now wasn't. I submitted a patch that changed one declaration in the newsreader from "char" to "unsigned short". When Red Hat was going to IPO, I was surprised to get an email telling me that since I was a contributor to Red Hat, I could buy Red Hat stock at the IPO price. I bought a few thousand dollars worth that morning at $14/share, sold them that afternoon at something like $70/share, transferred the money out, and never touched my ETrade account again. Who says submitting patches to open source doesn't pay? :-) The other time was when T-Mobile gave every customer one share of stock. Eventually they got tired of having to deal with having a bazillion people who owned one share each of their stock, and told us we had to transfer our shares to the broker of our choice or sell. I sold.
• alecco 6y ago
  Robinhood had many, many issues before. Very often at very critical times when the market moved. And their business model is a disgrace. As many say, PFOF should be illegal.
  • gruez 6y ago
    >And their business model is a disgrace. As many say, PFOF should be illegal. You get equal or better prices than on the open exchanges (NBBO), and they kick back money to the brokers making commissions-free trading possible. What's not to love?
• cadence- 6y ago
  Interesting explanation. I wonder if hedge funds that short enormous amounts of stock include this scenario in their risk calculations. I expect that yes, they are well aware that if the price of a stocks runs away too much, these mechanisms will force brokerages to disallow buying, so that they can buy back the stock at lower prices. However, there is one thing I still don’t understand from the article. Why were hedge funds allowed to still buy the stock? If this liquidity problem really happened as described, shouldn’t the trading be halted completely? I suspect the answer is that they don’t use a brokerage to buy and sell stocks. They probably have some kind of direct access to stock exchanges so they are not bound by the limitations set by brokers.
  • lordnacho 6y ago
    > Why were hedge funds allowed to still buy the stock? They use a prime broker, which is a fancy way to say Goldmans, JPM, Citi, etc's institutional brokers, which also have the same relationship with the DTCC. And their prime brokers did not leave too little cash at the clearinghouse. That's if you buy the story here. I'm still mulling it over. I used to run hedge funds, and indeed PBed with these big names.
  • stu2b50 6y ago
    Whether or not you were able to buy gamestop was more about how wealthy the broker you used was. If you were a retail investor on Fidelity, you could even buy options still. Hedge Funds naturally have, well, wealthy brokers tailored for institutional investors.
  • MrMan 6y ago
    Hedge funds tend not to use shady brokers who don't have strong balance sheets and competent risk managers and technologists. The list of better brokers is long.
• CivBase 6y ago
  This doesn't seem to add to the story. This doesn't explain why they had to keep selling. It only explains why continuing to sell didn't put them in financial peril. Robinhood took actions which they knew would manipulate the market in a particular way - one which was beneficial to them and their business partners. That's why people are upset.
  • paulgb 6y ago
    If they had blocked selling and it later came out that they didn't need to, people who had wanted to sell would be understandably pissed as well. It's a damned-if-you-do, damned-if-you-don't situation. I think they chose the least-bad of the two paths, because even if they blocked their own customers from selling, customers holding GME at other firms would be able to sell. Would you want to be with a brokerage who blocked you from selling when they could have allowed it?
    • CivBase 6y ago
      I absolutely would prefer that and I don't even own GME. Anything else is blatant market manipulation, whether or not it's intended. IMO, it should be illegal to facilitate only selling or only buying. Brokers should be forced to offer both or neither.
      • shakezula 6y ago
        Absolutely. Just imagine the inverse scenario here where they had a conflict of interest in a long position and turned off selling. Turning off both is fine if they’re not able to legally handle new buys. But just turning off buys is also pretty freaking sus.
      • tonfa 6y ago
        You could still buy if you were short (close your position). And allegedly there's many more shorts than long positions.
      • gruez 6y ago
        >IMO, it should be illegal to facilitate only selling or only buying. Brokers should be forced to offer both or neither. Just because you shut down trading at one brokerage doesn't mean the price is frozen. It could still drop like a rock, and you'd still end up with a bunch of pissed off customers saying that they couldn't exit in time.
• lordnacho 6y ago
  Surely RH risk management would see that both the 99% VaR and the gap risk have jumped, and draw the credit lines before their DTCC margin dried up? What's the worst that can happen if you top up the account a little more than you need? Whatever you save on interest can't be worth the reputation damage? There must be more to this story, as other brokers got in the same pickle. Perhaps it is some modern form of balance management that the new guys prefer, akin to just-in-time.
  • stu2b50 6y ago
    No one ever accused Robinhood of being competent. Although I think you're underestimating the difficulty of pulling billions of dollars out of nowhere. Robinhood was forced to sell equity to meet the deposit requirements - that's a harsh ask.
    • lordnacho 6y ago
      That is another oddity. If there was no insolvency problem, presumeably all that was needed was a loan?
      • stu2b50 6y ago
        And they did get a loan[0]. I think you overestimate the ability of Robinhood to get an infinite amount of money in debt from banks within a few days notice. Then they even sold more equity[1]. [0]https://finance.yahoo.com/news/robinhood-said-draw-credit-lines-214509076.html https://finance.yahoo.com/news/robinhood-said-draw-credit-li... [1]https://www.wsj.com/articles/robinhood-raises-1-billion-to-meet-surging-cash-demands-11611928504 https://www.wsj.com/articles/robinhood-raises-1-billion-to-m...
        • lordnacho 6y ago
          They're a financial institution in the age of zero interest, in no danger of defaulting. I mean come on? You sure it wasn't just money they were about to raise anyway? Just jam some friends in pre IPO?
• sn41 6y ago
  Never understood bailouts of hedge funds, whether by government dole, or by corporate collusion as Robinhood is now doing. On a fine day, these buffoons are all Ayn Randish free marketeers. They should be willing to live by their principles even in downturns.
  • lordnacho 6y ago
    I haven't read the books. Do any of the free market characters ever end up failing?
    • sn41 6y ago
      No, compassionate society is weak and prevents John Galt from achieving his true potential. Wasted 2 of my crucial formative years reading those books when I should have been studying for university entrance exams. There are some interesting ideas. But my personal guide is Thoreau, who says "that government is best that governs the least". I've never heard anyone call Thoreau a libertarian, but I'd rather be a Thoreau libertarian than Rand-ian.
      • tartoran 6y ago
        Never ceases to amaze me Ayn Rand resorted to receive social security benefits when she was old and broke, fact which makes her philosophy all the weaker. People need a safety net because unpredictible things happen that are beyond control.
        • sn41 6y ago
          I sympathise with her as a person. She went through a lot of trials and difficulties during her life. But to deny that other people matter in our lives is a strange stance. I decided that I don't want to go there. My work is to benefit humanity, little though it might be.
    • endtime 6y ago
      Yes, at least for a time. In general it's quite rare for a book to end with the protagonist failing, but in The Fountainhead, IIRC, the protagonist spends an extended period of time doing manual labor rather than architecture because he cannot practice it freely.
• ppod 6y ago
  The article does not really answer the question in the title. Yes, it shows why they still had the ability to execute Sells. But the question most people have is: If you are forced to halt Buys, isn't it fairest to also halt Sells? Now, I can see the counterargument: if you halt Sells, you are effectively preventing people from withdrawing their money from Robinhood. But, by allowing Sells (which are being bought by another party somewhere) you likely to influence the price, and you're putting your customers in a strange position relative to clients of other institutions who can still buy, and indeed, buy from Robinhood customers. I still haven't seen this question properly addressed. What are the precedents? When forced to restrict trading because of regulatory obligations in the past, has the normal response been to halt all trading or only one side?
  • alisonkisk 6y ago
    This is actual intersting debate. When the exchange itself halts, they (necessarily, mathematically) halt buts and sells. But there's no correct answer possible for just one brokerage. So now we go meta and ask "should it be legal to be a brokerage without a much larger cash cushion than current rules? Or should clients be warned about the possibility of freezes like this? Or should buyers take responsibility and not put their money in discount low-quality brokerages if they want to day-trade run hedge-fund style manipulation plays? All in all, if you hate sleazy hedge funds, you should have any sympathy for day traders and squeezers either, as as they intentionally are playing the same no-holds-barred game, not doing investing as the market system intends. If you want to hold Melvin accountable by law for alleged misdeeds, it's silly to say the law should require brokers to aid in market manipulation activities against their own solvency interests, instead of the law should require (and enforce) that Melvin do whatever they are doing wrong.
  • swampthing 6y ago
    https://mobile.reuters.com/article/amp/idUKKCN2253T2 https://mobile.reuters.com/article/amp/idUKKCN2253T2 https://mobile.reuters.com/article/amp/idUSKBN1FT2S4 https://mobile.reuters.com/article/amp/idUSKBN1FT2S4
  • tptacek 6y ago
    Be careful what you wish for! Levine noted Friday that a huge amount of the trading done in GME was institutional. Large firms can probably handle whatever collateral requirements there will ever be for a specific symbol. Here you have a bunch of random people pushing a $15 stock up to $400. Volatility makes it impossible for Robinhood to keep transacting in that stock. They shut down buys and sells. But trading on GME continues elsewhere; in fact, most GME trading has been occurring elsewhere. Now: the market crashes (as it inevitably must). You got in at $250, cheered as it beat $320, and now the stock is heading back to double digits...
• Thaxll 6y ago
  At that point the stock should have been "frozen", if you disable buy but not sell it means the stock can only go down.
  • fwsgonzo 6y ago
    Which should be, and probably is, super duper criminal.
    • sidibe 6y ago
      Did they block buying, or did they block opening new positions (i.e. could shorts still buy to close)? The latter is completely consistent and all this outrage would be unwarranted.
      • rsynnott 6y ago
        The latter.
      • Thaxll 6y ago
        They blocked buying. https://www.theverge.com/2021/1/28/22254102/robinhood-gamestop-bloc-stock-purchase-amc-reddit-wsb https://www.theverge.com/2021/1/28/22254102/robinhood-gamest...
        • sidibe 6y ago
          That article doesn't help clarify at all because it's just focused on long positions, if anything though I would say it's just about opening vs closing positions, the subtitle says "Users can still close their positions but can’t trade more"
          • Thaxll 6y ago
            What is not clear to you? You logged into the app and were not able to purchase shares of GME, plain and simple, you could only sell.
• jahlove 6y ago
  Would love it if someone would write a detailed article addressing the conspiracy Melvin Capital (and others) not exiting their short position. Melvin Capital says they did, yet the sentiment on virtually all of reddit (not just /r/WSB) is they didn't. I haven't found really anything to support reddit's conclusion.
  • stu2b50 6y ago
    There wouldn't be much to write about. Hedge Funds are not required to disclose their short positions in the US, so no one really knew how many shorts they had and of what kind, and no one knows if they did indeed close them. Reddit was speculating based on the lack of a reduction in short interest. However, it's hard to determine because a) you don't know how many shorts Melvin had b) you don't know how many new short positions were created that day
    • totalZero 6y ago
      also (c) short interest is not a real-time computation.
  • nprz 6y ago
    Also trying to understand this. According to S3[0] many short positions are still open, but it is unclear if these are the original shorts, or new if new shorts were opened at the higher price point. In other news, Melvin Capital is down 53%[1] [0]https://twitter.com/ihors3/status/1355246955874701314 https://twitter.com/ihors3/status/1355246955874701314 [1]https://www.wsj.com/articles/melvin-capital-lost-53-in-january-hurt-by-gamestop-and-other-bets-11612103117 https://www.wsj.com/articles/melvin-capital-lost-53-in-janua...
    • jahlove 6y ago
      thanks for the links. I guess I can't understand that S3 chart at all, because it looks to me like the "SI Shares" have dropped precipitously in the last couple days.
      • 6y ago
• napier 6y ago
  It wasn't only Robinhood. > Bad Brokers - Restricted purchasing of certain tickers E-Toro - Proof E-Trade - Proof Ally - Proof Public.com - Proof Merrill Edge - Proof IG Broker - Proof Trade Republic - Proof Webull - Admitted they were forced to by clearing firm - Clearing firm is Apex - They'll be moved to neutral once they publicly confirm Apex was sole reason the trades were restricted. Neutral Brokers - Restricted trading, publicly naming their intermediary Freetrade - Proof, blames Barclays - CMO Interview - CMO Tweets M1 Finance - Proof - Blames Apex Clearing Trading212 - Proof - re-enabled, caused by intermediary - Intermediary is IB Tastyworks - Proof, blame Apex Clearing Stash - Proof, blamex Apex Clearing TD Ameritrade/Canada - Proof - Proof2 - (Margin requirements increased, Covered call and short put orders may only be placed with a broker and support times are > 2h, other trades restricted) - Neutral because they didn't restrict the purchase of stocks with cash. Source: https://www.reddit.com/r/stocks/comments/l8rhr3/weekend_gme_thread_homework_for_all_lets_stop/ https://www.reddit.com/r/stocks/comments/l8rhr3/weekend_gme_...
  • DangerousPie 6y ago
    You would have thought that article had mentioned that, wouldn't you?
    • napier 6y ago
      It mentions it in passing, at the end, with a spin on the facts. The article glosses over the connections that the brokerage clearing houses have with hedge funds that likely have potentially painful short exposure. It also glosses over the consequences of making shares in certain companies sell order only. It's not a very good or balanced article.
• GNU_James 6y ago
  You all know why but are afraid to say it out loud.
  • vga805 6y ago
    I'm guessing they don't like the stock?
• snomad 6y ago
  Similar explanation was posted Jan 28 on twitter by Silent Cal[1]. This article and the twitter thread do paint a very plausible explanation. And is easy to accept. OTOH, a potentially far more nefarious, yet plausible, underlying motive was posted on /r/wsb today [2] that links GME to counterfeiting shorts. Given Steve Cohen's numerous scandals through the years as detailed on wikipedia [3], needing to cover up for counterfeiting shorts also seems like a plausible explanation. I hope the finance committee investigations AOC called for take place and consider both points. * - Not invested in GME, and prohibited from doing so by my employer. No intention of committing suicide and happy w/life. [1] - https://twitter.com/KralcTrebor/status/1354952686165225478 https://twitter.com/KralcTrebor/status/1354952686165225478 [2] - https://www.reddit.com/r/wallstreetbets/comments/l97ykd/the_real_reason_wall_street_is_terrified_of_the/ https://www.reddit.com/r/wallstreetbets/comments/l97ykd/the_... [3] - https://en.wikipedia.org/wiki/Steve_Cohen_(businessman) https://en.wikipedia.org/wiki/Steve_Cohen_(businessman))
  • franklampard 6y ago
    Thanks for sharing. I found it much more logical to believe it is illegal manipulation given history.
  • kart23 6y ago
    Is it possible Gamestop is selling back shares that it bought back a couple years ago, and we just don't know because they are only required to report that quarterly? Their outstanding shares used to be above 100 Million, its now around 70. https://www.fool.com/investing/2019/12/10/gamestop-just-bought-back-a-crazy-amount-of-stock.aspx https://www.fool.com/investing/2019/12/10/gamestop-just-boug...
  • ww520 6y ago
    Isn't counterfeiting shorts like counterfeiting money?
    • itronitron 6y ago
      http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm...
• Triv888 6y ago
  They do business with a company that is involved in the large short position, that is why.
• Murkin 6y ago
  Was the buy limit only for GME or all stocks on RobinHood? If it's the former, how does the article's explanation fits?
  • SpicyLemonZest 6y ago
    It was for a couple dozen different high volatility stocks.
• tgsovlerkhgsel 6y ago
  Interactive Brokers blocked share purchases too (the article claims they only blocked options), and not just on GME, even for Cash accounts (i.e. no margin involved).
• hsaliak 6y ago
  They failed in communication and lost trust. If their platform could not scale to the needs of their users, they should come out and say it, and should have done so before the fallout.
  • deleted 6y ago
    [deleted]
• franklampard 6y ago
  These brokers halted buys of GME Robinhood Webull M1 Finance Public E-Trade Does any of the above still restrict trading of those stocks, other than Robinhood?
• midasuni 6y ago
  A lot of noise in the press about how awful this was for people buying in late. I don’t recall quite as much concern during the last Bitcoin bubble. At least GME is actually worth something($5, $10, whatever) If people want to play the lotto or burn a billion dollars to send a message, I’m not sure why billionaires would go on cnbc angrily shouting it’s a “way of attacking wealthy people” if they weren’t really angry about something.
  • bigphishy 6y ago
    >If people want to play the lotto or burn a billion dollars to send a message I’m not sure why billionaires would go on cnbc angrily shouting it’s a “way of attacking wealthy people” if they weren’t really angry about something. My head hurts trying to read this
    • midasuni 6y ago
      Billionaires aren’t crying when people play the lotto. Or put it all on red. Or spend it on weed. Why is Leon Cooperman so worried about it ending badly for the general public. That means the rich will make a killing. He wasn’t bothered when things ended badly for the general public at any other time — like 2008. Even if he was really worried about the general public, why does he think this is attacking the rich?
• thefounder 6y ago
  This is really about protecting their clients, the hedge funds. Here you have it from the CEO of Interactive Brokers. The retail investors are the product, no the clients. https://m.youtube.com/watch?v=7RH4XKP55fM https://m.youtube.com/watch?v=7RH4XKP55fM
  • MrMan 6y ago
    Just use a broker like fidelity who is not similarly conflicted.
    • thefounder 6y ago
      Yeah, but if there are 4-5 big players and 3 of them ban the purchase of these stocks(not the sale) they can have a big impact on their price..just like U.S sanctions affect Venezuela's econnomy. And then you find out they have a vetted interest to drive the price down...so long with the free market
• dcow 6y ago
  I mean I get this it's a totally rational explanation of how all the machinery works. But why did Robinhood start liquidating peoples' shares at a loss (to the holders)? That is literally stealing from the poor to cover their own ass. The bank doesn't sell my house if the housing market gets volatile. What give any broker the authority to execute transactions on my behalf when they're under pressure because of a poorly constructed business strategy?
  • NovemberWhiskey 6y ago
    That would be the margin agreement that you agreed to when you opened your account. https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Margin%20Disclosure%20Statement.pdf https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Margi...
    • dcow 6y ago
      I don’t have a margin account (or any account anymore on RH) and they did this on cash accounts too.
• drocer88 6y ago
  Robinhood has a conflict of interest. Citadel owns Robinhood. Citadel owns hedge funds that shorted GME. Robinhood blocked purchasing GME. Something is fishy in all of this.
• twic 6y ago
  Well, i'm glad we finally got a clear explanation of this unexpected but thoroughly non-conspiratorial series of events from checks notes the guy who runs the Super Smash Brothers stats database.
• cccc4all 6y ago
  Robinhood is done as trading company. After this fiasco, who in their right mind can trust Robinhood for financial future. The cofounder stated in every interview that it was not a liquidity issue. The actual company stated reasons are still very cagey and ambiguous. There are all these third parties coming out with shill articles, trying to excuse Robinhood. This is classic propaganda PR campaign. Robinhood can’t explicitly state what they did for specific reason, because everyone can analyze whether it’s true or not. What is being attempted is to run third party propaganda PR campaign to excuse Robinhood. Has Robinhood explicitly stated the exact reasons for shutting down buying but allowing selling stocks? If not then why not? Unless Robinhood comes out with detailed legal and business justifications, all these shill excuses are just vapor.
  • MrMan 6y ago
    Robin Hood in my opinion is constrained by their previous marketing. There message to prospective users is at odds with reality. At some point this had to catch up with them. Stop worrying about this one crappy broker.
• jMyles 6y ago
  Setting aside blame and the speculation about whether this was or wasn't intentional manipulation, there's another thing that gives me pause: All of the offered explanations describe scenarios which are not possible in a decentralized financial toolchain.
• DSingularity 6y ago
  Is it possible that collateral requirements were raised by clearing houses specifically to knock Robinhood retail investors out of the game?
• syntaxing 6y ago
  Admittedly I know nothing about the stock market but when your decision somehow align with your business decisions and business partners interests, it’s hard not for people to expect there’s a more nefarious reason behind it.
  • rsynnott 6y ago
    Let's say some subreddit convinces a whole town that it would be a good idea to turn on all their water taps, and leave them on, at the same time. And, as the reservoir drains dry and the sewage lines start overflowing, the water company cuts supply. And then it turns out that the water company has some vague amorphous relationship with a bottled water company. Do you assume that the water company shut off supply because everyone did something weird and the system was about to stop working, or that they did it to benefit the bottled water company? Like, at some point, "this entity was forced into a position where they had to do the thing, but the thing might have benefited someone they're connected to, therefore they must have done it intentionally for reasons of collusion" looks like a pretty flimsy explanation.
    • syntaxing 6y ago
      While I understand the sentiment of your analogy, I think a big part that’s missing in your analogy is that the water bottle company loses a ton of money (if not bankrupt) if everyone keeps their water taps on and they gain a ton of money if they turn it off which changes the story completely. If I am the water company, and it’s in the water bottle interests, what stops the water company from simple saying “oh we have sewage issues” while the water bottle company rakes in the dough. What I don’t get is why Robinhood didn’t outright explain this at first. It seems like it’s a good excuse and they announced it right after the media suggested this was the possibility.
      • rsynnott 6y ago
        They probably should have. But “we are virtually insolvent”, if that was the case, is not the sort of thing that companies, especially private companies, are normally excited about doing. Bad look.
• abfan1127 6y ago
  How do high frequency traders operate in these conditions? Do they use margin? Is it not as capital intensive because they tend to buy AND sell so much?
  • dubcanada 6y ago
    They don't use Robinhood. Like the article say there is companies that are 50 years old with barrels of money.
    • vinay427 6y ago
      To be fair, Interactive Brokers also halted these transactions, and they're well-known for catering to hobbyist and professional traders. Granted, they're more mainstream than dedicated day-trading brokerages, but some of those depended on clearing houses that also decided to halt sales.
• xwdv 6y ago
  Rather than disabling the buy button they should have had a popup appear that explains the situation as simply as possible so that people wouldn't resort to conspiracy theories as an explanation. Instead they made the UX look evil as hell. Like locking a user in a room with nothing but a loaded gun.
• ummonk 6y ago
  This is misinformation. The DTCC used their discretionary powers to jack up the collateral requirements on certain specific stocks to 100%, well above what was required by the VaR formula. For a description of this see e.g. https://twitter.com/KralcTrebor/status/1355172567242469377 https://twitter.com/KralcTrebor/status/1355172567242469377
• crorella 6y ago
  Because they wanted the price to go down
• tehjoker 6y ago
  Okay, but why stop buys instead of freezing buys and sells?
• lxe 6y ago
  > It is not about margin accounts > Brokers cannot use client money to satisfy their clearing fund obligation. Let's assume there's no margin, and everyone fronts cash for their trades. There's no reason that Robinhood or other broker would not use client money for clearing... that's the point of a broker.
• danman114 6y ago
  Any thoughts/comments on the “convenient” timing? I’m not writing a lot here, first post! Hi! :) One thing I didn’t see mentioned here yet, and what makes look suspicious in my eyes, is the timing. It seemed to me, and I saw this charted in some places afterwards (sorry, don’t have proper sources right now), that the disabling of the options on MULTIPLE brokerages happens almost exactly at the same time a heavy ladder attack was started which dropped the price significantly from - maybe 300-ish? to 120-ish in minutes. It looked like stop losses should get triggered and the whole market brought to the bottom without the smaller investors a) being able to buy the dip and b) being able to rally the price by buying back thusly. All the reasons given for the disabling and more might apply, but still this could have been used through the timing as part of a multiple pronged attack, seemingly also coordinated with bots flooding wsb with disheartening messages and a DDOS attack on Reddit’s DNS infrastructure, to try and keep individual investors alone with their decisions to either hold or keep their profits and ruin, thus trying to trigger a panic sale. What, maybe to get out of some kind of squeeze? :) It was great to see that most people seem to have held on even whilst disconnected from the hivemind for a bit.
  • lmc 6y ago
    > Any thoughts/comments on the “convenient” timing? WSB lit a fire, RH had to call the fire department
• ekns 6y ago
  It seems to me that the system has way too many incentives for collusion across the various levels. Even the DTC is just a private corporation apparently? The incentives make the system, and so should this system be rethought from the ground up to align the incentives so that never again would this kind of stuff happen againÖ See: https://old.reddit.com/r/wallstreetbets/comments/l9auf5/important_gme_short_attack_tactics_predicted_in/ https://old.reddit.com/r/wallstreetbets/comments/l9auf5/impo...
• tiku 6y ago
  The stock system is not really equipped to handle large small volumes I guess?
• e-clinton 6y ago
  What I want to know is why the block buys of GME and AMC when they could’ve blocked purchase of any other high volume stock that wasn’t the vehicle used as part of a class war. Why not block Tesla, Microsoft and Apple purchases?
• deleted 6y ago
  [deleted]
• shrimpx 6y ago
  Why was buying with personal cash disabled?
• _robbywashere 6y ago
  Regardless of which side of this you’re on. I think it’s pretty weird they didn’t clearly explain why they disabled buy orders. The reason given in the user interface was “volatility”, not much else.
• kyrieeschaton 6y ago
  Simultaenous with pausing buys of GME they were allowing accounts and positions to be opened and margin trades to occur, so it cannot be that they simply needed to limit their capital requirement full stop. The capital requirement is a prerequisite for being in the business and this is not an unforeseen circumstance, it's why they have lines of credit (which in fact they did draw on, just not enough to support the business they purport to be in) on top of their working capital.
• uh_uh 6y ago
  I don't understand this part: > Basically, when you submit a trade on a broker, the exchange of money for stock doesn't actually happen until 2 days later, and the firm that handles that exchange is called a clearing firm. Before then, Robinhood just sends records: John bought 2 GME for $600, Mary sold 1 GME for $290. If that's all that happened that day, then Robinhood would need to provide $310 dollars to the clearing firm, and receive 1 stock. > That's a credit risk - what if Robinhood doesn't have the money on settlement? The clearing firm would be on the hook. Why would the clearing firm be on the hook? Can't they just refuse to hand the stocks over if Robinhood doesn't have the money to pay for it?
• fthd 6y ago
  what's not being discussed here is that Robinhood became their own clearing broker in 2018. I'm sure at the time of the launch it was celebrated with great fanfare as it would "help the consumer" and add to their bottom line. It's not an evil conspiracy but it's the typical silicon valley grow at all costs mentality. They apparently did not account for the risks of being their own clearing broker and having to put up the deposit to the DTC before settlement. However, they should have realized in this past year that their users have a hive mind and have the same collective behavior (which is also why citadel pays them so much), so when a stock gets popular, everyone will be on the buy side. Other brokers such as webull, were able to reenable trading the following day without limits because they use Apex Clearing which likely has the ability to collateralize the trades and has a more diverse set of trades (buys/sells) that net each other out. Things they could have done to prevent this, that actually would have been good for the user, but limited growth is: disabled margin trading, reduced account size, use a third party clearing broker.
• st0neyeye 6y ago
  Honestly, I found this article to be of extremely low quality. It really doesn't matter why this thing happened. Adding a plausible or even reasonable explanation for why it happened only distracts from the fact that it did happen, and retail traders were disadvantaged as a result. Distractions are not helpful, and can arguably be considered shill activity in some respects by muddying the waters, it also prevents resolution of the real problems. Please don't add to bullshit, there's enough of it on the street after last week. Any time there are more sellers than buyers the market price will go down, these are simple mechanics, easily modeled to a fair degree of accuracy, everyone in the market knows this, and this loss that played out was tragic because many people were harmed in the process by the brokerage exchanges/clearinghouses actions. That fact, is what is important and why the people responsible for these decisions should be held to account. There need be no conspiracy which many people seem to assume based on their posts, the simple fact is people were disadvantaged because the rules were changed on them inequitably and without notice. If there was collusion, the SEC should investigate and put people in prison for this, not fine them, as to if that will happen we'll need to wait and see. The fact remains, retail traders were disadvantaged and as any brokerage firm, if they could no longer trade due to trading requirements all trading should have halted on the platform and a blanket notice sent to everyone as to why; this is obvious, has happened in the past, and obviously this didn't happen this time and hedge funds were allowed to close or possibly re-short their inherently risky positions while retail investors could only look on in shock at being unable to do anything with the rug pulled out from under them simply waiting until the restrictions were lifted or sell at a loss. This, in my opinion was criminal and a major breach of the public trust, as well as fiduciary responsibility. Even if they have it in the user agreement as a legal caveat with vague language, no one consents to someone saying after the fact, we're going to change the rules when the chips are down and allow your money to be stolen, and actually do it, and you hold us harmless or we won't offer the service; and that is exactly what happened. A take it or leave it ultimatum to get you in the door which allows shady corporate behavior without court oversight, simply based on the fundamental theory that if you agree to a contract you can't go back and sue them for loss but the contracts can be updated at any time after and by simply clicking/using the service you consent is laughable. Lots of issues around this and arbitration abound, I won't get any further into contract law, I'm not an attorney, its not interesting to me. What's critical is, a very important line was crossed, and by doing what Robinhood and the other firms did, they have effectively doomed their businesses. It doesn't matter if google has reset their reviews, or facebook bans groups, it hit the news nationally. Most everyone has heard about what happened and while some may not understand the implications immediately a simple fact remains. A brokerage business cannot operate without trust, and because some of them allowed a conflict of interest, coupled with their own very possible questionable motives and their actions this is the expected and predictable result. I personally didn't participate in the new-tulip mania because it doesn't meet my risk profile, but I still pulled all my funds from E*trade the moment I heard trades were limited in one direction. I cannot trust any brokerage that would allow only buys and not sells for the simple reason that this is a clearly rigged market and you can't make money long-term in a rigged market. A casino is a rigged market. The only possibility in a rigged market is what the house allows you to make, and companies will always do what's in their own best interest, and when the business becomes taking my money as long as they can provide a plausible reason for it that passes legal muster I have no doubt they can and will do that. I find the claims of accounts of individuals being liquidated at a loss during trade restrictions because they were margin accounts by default and the margin requirements suddenly changed, troubling to say the least. Investing is not a casino, and by taking the actions these brokers/clearinghouses did to limit trades in only one direction, they have shown that these firms think it is, by their actions. I refuse to do business with any business that I cannot trust will follow a very basic duty of care and all of these companies have failed in this respect in my eyes. They also had a fiduciary responsibility to their shareholders which they broke when they decided to allow trades in only one direction because there will be fallout. I find it most surprising that there haven't been any shareholder lawsuits filed over this because there are plenty of investors in these financial service companies that will take a loss as a result of these decisions. Mostly because investors that have been watching this attentively who were not involved in the related securities are now moving their money from firms they can no longer trust due to the now-changed risk profile. There should be almost no reasonable customer to Brokerage/Exchange counter-party risk with 100% backed funds, and this profile seems to have suddenly changed. Simple fact, this didn't need to happen, but for a complex number of reasons which are mostly immaterial, it was allowed to happen. If your the type that wants to go into the why's or hows, focus on the root cause, and you need look no further than its because no one was regulating market shorts, and the shorts thought they could harvest investor money from various securities with impunity through sophisticated structured mechanisms to manipulate the price down with plausibly legal structures. It doesn't matter that it happened because of lax reporting requirements, no regulation, cheap margin/leverage, or a high barrier to countermeasure. It happened. Everything that happened and continues to happen after is immaterial except to show us what has changed and what investors will now need to do to adjust for that now changed risk profile. Edit: on a side note, anyone happen to know why the YC edit/update function isn't working? It claims to update the post but isn't actually working; I had to delete the post and repost to have it actually update for some minor spelling and grammatical corrections and to better clarify specific wording to be less vague.
• baryphonic 6y ago
  This is well-reasoned and decently thorough. However, when Robinhood et al halted only buys but not sells, they opened themselves up to the "corrupt elite" interpretation that Wall Street manipulated the market. There's almost no question that the effects of the unidirectional freeze were to drive down the price, thereby helping the shorts. Sure, Robinhood would have been not as well off as they were when they did allow sells, but they'd at least not be directly contributing to manipulation. Further, the article indicates DTCC increased deposit requirements. What is their procedure for making this decision? Are they rule/process-based or discretionary? I ask because DRCC seems like a singular bottleneck in this system, a single point of failure. It's a bit odd to see the argument that it's not a "conspiracy" (though I'd prefer "corrupt collusion") because one organization all parties depend on made a discretionary decision that caused most participants to take an action benefitting the people most likely to be well-connected to said organization. It remains to be seen whether facts bear out any of these hypotheses. Facts do bear out that Robinhood lied about their cash flow situation. But I do find it peculiar that we're getting this explanation three days after the fact. "Government rules require vastly increased deposits due to the unprecedented conditions yada yada yada" would have been a better message than the BS they did end up sending out, and it's a perfect excuse to pass the buck.
  • mikob 6y ago
    Also, if cash were the issue, why limit only “meme stocks” why not limit stock buying across the board to prevent manipulation?
    • baryphonic 6y ago
      +1 Exactly. My post has a score of zero, yet zero comments explaining why I'm wrong. I expect better from self-described "hackers."
• deleted 6y ago
  [deleted]
• mlthoughts2018 6y ago
  The article is completely wrong. Robinhood did not disable buys only, they disabled any trades that took a net new position. Existing options holders who needed to buy or sell were allowed to, and regular retail traders could also buy or sell on the other side of those transactions, because they went to closing existing open positions. The reason you couldn’t buy but you could sell is just the simple mechanics of a short squeeze. All the net open positions were short sellers needing to buy (e.g. needing retail investors to sell) and there was just near zero volume of call options holders looking to sell (e.g. needing retail investors to buy) to close an existing position. I feel pretty upset to see the article going into all these details of capitalization - that 100% was not the issue and at no point did Robinhood “disable buys but not sells.” They disabled creating net new positions which just happened to have a side-effect of disabling buys as a matter of the particular trading volume of various option types. If you were a call option holder, you could sell (and therefore the other party could buy).
• jcaldas 6y ago
  As you can see, buys make this worse, sells make it better. Robinhood could not execute buys, because it would increase the deposits they'd need, which they legally must obligate by. Sells, on the other hand, do not have this problem. They would not push the 95% boundary more to the right. I have been trying to analyze this Robinhood story in an unbiased and objective way. My motivation is that I am interested in contemporary history and believe that what we witnessed in these past few days is a historical event. I have a question to those here who are knowledgeable about finance and law (I am certainly not). If my stock trading app stops allowing buying a stock, while still allowing selling a stock, even if this is done purely for technical reasons (see quote at beginning of this comment), am I incurring in market manipulation? To me the answer is evidently yes, but I would like to hear other opinions.
• jVinc 6y ago
  > So, Robinhood legally could not submit trades on $GME until they could muster the deposits for GME that they needed This seems ad odds with what the Robinhood CEO said in interviews which was that Robinhood did not have any legal obstacles but acted preemptively to avoid future issues. I think the distinction is important, as both lawsuits and potential investigations into market manipulation and fraud will hinge on this point. Especially since it seems certain hedge funds "in the know" seemed to reload shorts before the action that was taken, so while Robinhood might have queued up for this action expecting the they might run into legal requirements, they however decided to instead pull the trigger themselve, potentially because acting in good faith they would not run into a legal requirement, which would have left people holding a huge bag on top of their existing losses, potentially bankrupting a couple of major players and likely killing robinhood as well.
• praeter 6y ago
  Sure, it's a great explanation, but it's also straight from the shorting playbook: http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm... "Pulling margin from long customers — The clearinghouses and broker dealers who finance margin accounts will suddenly pull all long margin availability, citing very transparent reasons for the abrupt change in lending policy. This causes a flood of margin selling, which further drives the stock price down and gets the shorts the cheap long shares that they need to cover. (Click here for more on Pulling Margin)." http://counterfeitingstock.com/CS2.0/CS8PullingMargin.html http://counterfeitingstock.com/CS2.0/CS8PullingMargin.html
• anonu 6y ago
  > Sells, on the other hand, do not have this problem. They would not push the 95% boundary more to the right. This is misleading in the article. The margin requirements have to do with VaR or value at risk, which has to do with the historical price returns of specific stocks. If a particular broker doesn't allow buying, in theory it shouldn't be directly related to the VaR. Case in point. RH severely restricted buying and GME stayed at lofty levels...
• ineedasername 6y ago
  If Robinhood wants to play in this game they need to have deep enough pockets to cover unanticipated events. "We can't both pay our bills and provide you with service at the same time" isn't a great sales pitch. So the record we have right now is that Robinhood can't keep their servers running on high volatility days (see early 2020) and they can't cover their collateral obligations on high volatility stocks, basically the exact times that people will want to be using their service.
• Emanation 6y ago
  Author has no explanation for the formula and the esoteric quote provided.
• known 6y ago
  Failure of REGULATOR; "If it moves tax it. If it keeps moving regulate it. And if it stops moving subsidize it" --Ronald Reagan (b. 1911)
• _trampeltier 6y ago
  If so, shouldn't they not stopped to buy ALL stockes, if that would be the case?
• deleted 6y ago
  [deleted]
• tacocataco 6y ago
  Don't forget to re-rate Robinhoods app. Mine got deleted. Sorry if this is off topic, reading this story reminded me to check my review.
• EricE 6y ago
  Makes sense. Too bad their CEO didn't make the same arguments when he was giving all those interviews :p
• powerandr 6y ago
  From the conversation in CH: Elon Musk: OK, you had to restrict buying. Why didn’t you also restrict selling? Vlad Tenev: The fact of the matter is, people get really pissed off if they’re holding stock and they want to sell it and they can’t. So I think that’s that’s categorically worse. Read full transcript: https://www.mrhack.io/blog/elon-musk-vlad-tenev-robinhood-ceo-full-transcript/ https://www.mrhack.io/blog/elon-musk-vlad-tenev-robinhood-ce...