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so whats stopping a hedge fund from paying them $$$ to "suspend" trading on a particular stock for a given time frame? If what they are doing is legal, than ce

by mox1 6y ago

so whats stopping a hedge fund from paying them $$$ to "suspend" trading on a particular stock for a given time frame? If what they are doing is legal, than certainly that would be legal?

joncrane 6y ago
So here's the thing: there's plausible deniability at play here. RH isn't the only brokerage to suspend/limit trading in volatile stocks. The reason given (liquidity issues for the broker and clearinghouse) is entirely plausible. While it's possible, it's (I believe) very difficult to prove that that's what happened, and frankly, there's a more obvious answer. Hanlon's razor applies here.
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- ouid 6y ago
  Do you mean Ockham's razor? Hanlon's razor is completely incompatible with the efficient market hypothesis, and really just finance in general.
  - joncrane 6y ago
    Hanlon's razor is "Never ascribe to malice that which is sufficiently explained by incompetence." The "incompetence" explanation is that RH is a baby newcomer as far as retail brokerages go and made a desperate move to placate NSCC and save their butts. They got in over their heads and cast about to figure out how to make it through this week. The "malice" explanation would be a sinister cabal led by Citadel (RH's MM who pays them for order flow) pulled strings via a back room threat to make RH suspend buying of GME. The
ABeeSea 6y ago
Intent matters. In your hypothetical, they wouldn’t be able to rely on the argument of risk management if their risk profile hadn’t changed.
jec99 6y ago
In this case, it would be illegal market manipulation on behalf of both the hedge fund and RH. There are plenty of laws that govern people's behavior depending on intent; for instance, shorting a stock is not illegal, but organizing a short in order to force other companies to sell (the opposite of a short squeeze) is illegal. The SEC can use your own trades as evidence against you; if you build a massive short position that is otherwise inconsistent with your risk management philosophy, it's evidence that this trade was manipulative.

by mox1 6y ago

so whats stopping a hedge fund from paying them $$$ to "suspend" trading on a particular stock for a given time frame? If what they are doing is legal, than certainly that would be legal?

joncrane 6y ago

So here's the thing: there's plausible deniability at play here. RH isn't the only brokerage to suspend/limit trading in volatile stocks. The reason given (liquidity issues for the broker and clearinghouse) is entirely plausible. While it's possible, it's (I believe) very difficult to prove that that's what happened, and frankly, there's a more obvious answer. Hanlon's razor applies here.

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ouid 6y ago
Do you mean Ockham's razor? Hanlon's razor is completely incompatible with the efficient market hypothesis, and really just finance in general.
- joncrane 6y ago
  Hanlon's razor is "Never ascribe to malice that which is sufficiently explained by incompetence." The "incompetence" explanation is that RH is a baby newcomer as far as retail brokerages go and made a desperate move to placate NSCC and save their butts. They got in over their heads and cast about to figure out how to make it through this week. The "malice" explanation would be a sinister cabal led by Citadel (RH's MM who pays them for order flow) pulled strings via a back room threat to make RH suspend buying of GME. The

ABeeSea 6y ago

Intent matters. In your hypothetical, they wouldn’t be able to rely on the argument of risk management if their risk profile hadn’t changed.

jec99 6y ago

In this case, it would be illegal market manipulation on behalf of both the hedge fund and RH. There are plenty of laws that govern people's behavior depending on intent; for instance, shorting a stock is not illegal, but organizing a short in order to force other companies to sell (the opposite of a short squeeze) is illegal. The SEC can use your own trades as evidence against you; if you build a massive short position that is otherwise inconsistent with your risk management philosophy, it's evidence that this trade was manipulative.