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,,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 R
by 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 agoIt'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 agoIt'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 agoIt'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 agoHow would you define a "liquidity issue"? I would define it as "current liabilities in excess of current assets", using the accounting definitions of each. It's not clear that Robinhood was ever in that situation. Not to defend the RH CEO, who I thought was very poor about communicating this, but I don't think that particular sentence was a lie.
- xiphias2 6y agoThey were in it, as they wouldn't have been able to deliver the value of the options at that point (that's why they needed the cash injection). The whole stock market industry is based on fractional reserves.
- paulgb 6y agoWhat do you mean by > deliver the value of the options Do you mean they wouldn't be able to give people cash if they sold their options?
- deleted 6y ago[deleted]
- cm2187 6y ago> I would define it as "current liabilities in excess of current assets" That's solvency, not liquidity. If your liabilities exceed your assets you have gone bust. Liquidity is having the cash to cover your outflows. You may have enough assets but if these assets aren't liquid, you have a liquidity issue.
- ncallaway 6y ago> I would define it as "current liabilities in excess of current assets" I don't think this is a good definition. If I have a $150 electric bill due immediately, no cash, and $200,000 of real estate I have a liquidity issue. This despite the fact that my current assets far exceed my current liabilities.
- skybrian 6y ago
- hehehaha 6y agoThey had to access money for 3-4 days due to (1) surge in turnover in regards to GME including weekly option rollovers which by Wednesday had ballooned, and (2) influx of new accounts opened with instant access to buy meme stocks. It was a liquidity issue but if he had come on TV and stated that, there would have been market collapse and utter chaos. I can’t understate how close we got to having a big liquidation event on the entire market, which we still may depending on how this week goes.