26 ms·

It’s Time for Real Time Settlement

257 points by marc__1 6y ago

naveen99 6y ago
baby steps, maybe we can go to overnight settlement first. Robinhood please bring options on cme bitcoin futures to the masses.
- h1srf 6y ago
  Ccan you trade futures on RH yet? Why would they allow options on futures if they don't allow futures trades
hehehaha 6y ago
I don’t even know what to say about this. It doesn’t sound like he learned his lessons at all. He’s calling for real-time settlement which is not practical for equities. On top of that he completely dismissed RH’s root problems: very loose margins and new account standards. I was defending RH on HN last week but I have to reconsider.
- zaroth 6y ago
  Robinhood got called up at 3am with an extortion demand for $3 billion due that morning, unless they shut off Buy orders of GME. The collateral call had nothing to do with Robinhood’s ability to pay for the orders it was placing. The problem was the GME short sellers were insolvent at the prices the stock was trading at, and contagion from the hedges failing would have left the clearinghouse looking at billions in loses.
  - mike_d 6y ago
    Which is why you push back and tell the clearinghouse to make a public statement to that effect. The CH is faced with two options: One, make the statement and hurt a public reputation they don't care about in the first place. Or they could cut off all trading to RH, which puts RH on the same side of the fight as they have been trying to market themselves as being on from the beginning. Win win.
    - justlurkin12 6y ago
      Actually if RH didn't wire over the funds, they would be dissolved due to illiquidity.
    - ABeeSea 6y ago
      I don’t think it was the CH’s choice. I believe the collateral requirements are set in Dodd-Frank. And financial firms don’t go j to extended bankruptcies when they run out of cash like other companies. They immediately go into receivership and/or liquidation. Trying to play chicken with the CH would have just ended RH as a company pretty much immediately.
      - mike_d 6y ago
        If it was a regulatory requirement, then they should have been put in to receivership immediately. Being unable to meet colleterial requirements means they extended credit beyond their means.
        ABeeSea 6y ago
        They never went over the threshold because they turned off buying for the most volatile stocks.
  - ZephyrBlu 6y ago
    Sorry, what? I can't tell if you're serious. Robinhood didn't get extorted, their clearinghouse told them they needed more capital to secure further $GME trades, because the volatility has been off the charts. Vlad even states this in the article! > Clearinghouse deposit requirements skyrocketed overnight ... > The clearinghouse deposit requirements are designed to mitigate risk
    - unethical_ban 6y ago
      I think the point is, the effect of that sudden change was the screwing over of retail investors at the expense of funds and firms that weren't locked out. And that RH should have seen this coming if it were all "by the book". And how the hell can those fees go up so instantly? If we're going to be all "free market" about how only the strong survive, RH should be eliminated.
      - ZephyrBlu 6y ago
        It _was_ by the book and they _should_ have seen it coming. "How do clearinghouses determine how much is required? It’s pretty technical, but the process basically works as follows: clearinghouses look at a firm’s customer holdings as a portfolio. They use a volatility multiplier, looking at specific stocks, to quantify their risk. The clearinghouse may assign significant additional charges based on how much of one stock a firm’s customers hold. If a firm’s customers have more buy than sell orders, and the securities they’re buying are more volatile, the deposit requirement will be higher. Clearinghouses can also require additional deposits if certain thresholds are met." https://www.streetinsider.com/Corporate+News/Robinhood+Blames+Clearinghouse+For+Limits+on+Trading+in+GameStop+%28GME%29%2C+AMC+%28AMC%29%2C+Others/17890266.html https://www.streetinsider.com/Corporate+News/Robinhood+Blame...
        unethical_ban 6y ago
        Do you agree, then, that RH should be punished, if not dismembered as an entity, for incompetence leading to billions in stock losses?
- justlurkin12 6y ago
  dumb question, why is not practical? As for the root problems, those are not related to the issue from last week (not sure if you're aware, but margin had no factor in play with the DTCC requirements).
  - hehehaha 6y ago
    There are many reasons but most importantly, delayed settlement serves as fraud deterrent and error/exception handling. Should be T+1 same as options. Think of it as a database, do you want instantaneous non-reversible commits by default when transactions number in the billions with known error rate? Or perhaps have a reasonable buffer for safety?
    - justlurkin12 6y ago
      T+0 implies same day not instant. I think you can enable all of those features with hours of delay instead of days.
      - hehehaha 6y ago
        I can maybe see T-0. But I am pretty sure Vlad is talking about near real-time. Even with T-0, most of the trading is done in the last ten minutes at 3:50 EST (due to vwap). I don’t see the benefit in settling T-0 outweighing the value of safety net provided by extra time overnight.
    - unethical_ban 6y ago
      Why are reasonable buffers done in days? Why should fraud prevention be done by lag, rather than proper IAM? And non-malicious errors are reversible.
    - PeterisP 6y ago
      For cash, pretty much every country has a functioning real time gross settlement system that manages to do essentially instantaneous non-reversible commits by default and carries all the large payments and the netting settlements for all kinds of smaller bundled payments. Yes, there are risks, errors and fraud - but if that's manageable for very, very large amounts of cash, why wouldn't it be for stock?
- mikelward 6y ago
  Why is it not practical?
- kelnos 6y ago
  > He’s calling for real-time settlement which is not practical for equities. Why not? In most cases share ownership is just a row or two in some database. If you can update those in real time (which you should; a legacy system that doesn't support this can be upgraded, even if at significant cost in implementation and testing), and do instant (or near-instant) funds transfers, you should be able to settle within minutes. Certainly same-day, at least. Now, I would accept that maybe instant settlement is not desirable. Maybe it's good to be able to reverse fraudulent or illegal trades before money fully changes hands, for example. But that's a different thing.
  - deleted 6y ago
    [deleted]
tristanj 6y ago
It's a good thing that DTCC aware of this issue and is looking into accelerating this to T+1 (followed by T+0) using blockchain and distributed ledgers. https://www.finextra.com/finextra-downloads/newsdocs/embracing%20disruption%20white%20paper_final_jan-16.pdf https://www.finextra.com/finextra-downloads/newsdocs/embraci... Edit: No clue why this is downvoted.
- sam_lowry_ 6y ago
  How come I know for sure this will fail?
  - silverfox17 6y ago
    Probably blockchain
    - choeger 6y ago
      They could mitigate by using a quantity of ML and mix in some good old-fashioned Big Data. As a side note, we need a defined unit for the quantity of hiptech in a software project. I propose one AI (= 100 Microservices).
      - MattGaiser 6y ago
        Better add in some cloud just to be sure and at least one IoT developer for premise security.
      - LatteLazy 6y ago
        Don't forget the eye-of-newt... ;)
- vmchale 6y ago
  Why is blockchain involved?
  - scubbo 6y ago
azifali 6y ago
I am not quite sure if everyone else is ready for this.
ssivark 6y ago
Out of curiosity, are there any reasons to prefer slower settlement? (Since this seems like a no-brainer, but clearly hasn’t happened already)
- dan-robertson 6y ago
  Some ability to net—that is to buy at one price, sell at another, and only settle the difference—is probably desirable
  - freeone3000 6y ago
    Sure, but end of day settlement (like is practiced on TSX!) has all of the reasonable benefits of T+2 settlement, while still taking place in an understandable time frame.
    - throw0101a 6y ago
      If TSX = Toronto Stock eXchange, I do not think that is correct: * https://www.tsx.com/news?id=533&year=2017 https://www.tsx.com/news?id=533&year=2017 In Canada it's done by CDS Clearing and Depository Services Inc. (CDS) and is currently T+2 just like in the EU (2014) and US (2017). A 2015 whitepaper discussing the (then) proposed change: * PDF: https://www.cds.ca/resource/en/174 https://www.cds.ca/resource/en/174
- tomatocracy 6y ago
  There are reasons to prefer settlement is not instantaneous - eg it makes fat finger trades easier to unwind. There are also probably some special cases like creation/destruction of ETF shares, ADRs, IPO greenshoe etc which take a bit longer to work through. But I think the main reason for these changes being slow to occur is because noone wanted to break the system in the process - the settlement process for share trades in the US is/was viewed as quite fragile due to the way it had evolved over time.
  - atombender 6y ago
300bps 6y ago
US Equities recently changed from T+3 to T+2: https://www.sec.gov/news/press-release/2017-68-0 https://www.sec.gov/news/press-release/2017-68-0 There are many types of securities that are already settling at T+0.
- the_mitsuhiko 6y ago
  What does T+0 mean? Instantly or same day?
  - tobyjsullivan 6y ago
    According to [0]: > 'T' is the transaction date If that's an accurate definition, then it's safe to say it would technically mean same day. Simultaneously, if we want to be technically accurate to a pedantic level, "instant" would be impossible given speed limits of information transmission (speed of light), etc. So "T+0" couldn't mean "instant" in any case. Maybe some settlements are, in fact, near-instant but I don't think that's implied by "T+0". [0] https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/ https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t...
  - 300bps 6y ago
    Same day settlement. Definitely not instant.
- kolbe 6y ago
  It blew my mind when they went from T+3 to T+2. I couldn't fathom why they would go about changing it, but not go to overnight settlement. Government, though.
  - aeyes 6y ago
    You might be surprised how much of the modern world is running on CSV files on FTPs.
  - throw0101a 6y ago
    > Government, though. Equities clearing and settlement is done privately: * https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_... If the members of the DTCC want to have it done faster, they'll request it. There's been talk, but it involves everyone agreeing to it and changing their internal workflows as well AFAICT.
jeffbee 6y ago
Wouldn't real-time settlement have completely destroyed RH last week? How would they have funded trading?
- justlurkin12 6y ago
  Real time securities wouldn't need brokerages to front collateral while the trades settle by the virtue of no settling period. They would only have to deal with customer capital used to buy the stock.
  - kelnos 6y ago
    Wasn't a big part of this issue fueled by RH fronting the money for trades when the customer was transferring money into their account from a bank over ACH? Making ACH instant (which I believe is in the works) would solve that, not T+0 for settlement. (I don't have a good feel for what was the bigger driver of RH's issues though: overextension because of slow ACH or slow trade settlement.)
    - stu2b50 6y ago
      No, brokers must front collateral to clearing firms simply because there's no inherent reason to trust any of the firms will have their capital or equity obligations in T+2 days. ACH transfers and margin, although possible reasons why a firm wouldn't have funds, are not the direct reason, which is DTCC requirements.
      - deleted 6y ago
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    - paxys 6y ago
      No, that was negligible. Robinhood actually fronts the least money out of all major brokers (something like $1000). And if that was the case the easy solution would be to block trades if your account didn't have the sufficient settled balance.
kzrdude 6y ago
Robin hood has been called so many strange names and then gets no recognition when they want to strike at the root of the problem.
- marcinzm 6y ago
  Robinhood knew A was the case when it did B. Given A, B can cause really bad things. Then it failed to properly communicate as the bad things started to happen. Now it's blaming A rather than its decision to do B or its failure to communicate.
- paxys 6y ago
  The whole episode has been a case study for how not to handle PR. Robinhood lost the public narrative every step of the way, and all their statements were late, lacking in detail and even contradictory. Remember the now-famous "we don't have a cash flow problem" statement from their CEO, right before they had to borrow a billion dollars to stay in business?
  - ummonk 6y ago
    Right, and it is noteworthy to compare the PR from Webull in response to similar issues. RobinHood’s PR problems are entirely self-inflicted.
    - swampthing 6y ago
      Agreed. It's sad/shocking to see a China-run company out-execute a homegrown, well-funded US startup on public relations with the US market.
- IgorPartola 6y ago
  The simple issue that I saw with RH is that they restricted the ability to buy stocks like GME but not the ability to sell. It’s one thing to freeze the stock in place. It’s an entirely different thing to basically create a situation where your actions drive the price down while only letting investors sell. I will be honest I don’t entirely grasp the situation, but this seems to me like it was not just a bad PR situation but rather that they actually did something wrong.
deleted 6y ago
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hinkley 6y ago
Would it make sense for securities places to charge each other interest for unsettled trades? You’d make more profit then if you could settle your trades faster, making it more carrot than stick. Something like the overnight rate banks charge each.
- deleted 6y ago
  [deleted]
CyberRabbi 6y ago
> When people invest, they’re placing their hopes and dreams for the future in our financial system. We can’t let them down. This is probably generally true but that investment behavior is not what drove their clearinghouse failure. I wish they would quit it with the fluffy rhetoric. Why doesn’t Robinhood understand that we want straight answers from them.
- mikegreen 6y ago
  But "When people invest" - This isn't investment behavior. This is speculation and most likely simple addiction to gambling behavior they drive and incent people to do.
LatteLazy 6y ago
It is. The EU has a road map to get it down to T+0 (same day) I believe. That's not real time but its a start...
- tonfa 6y ago
  It's probably the right tradeoff though? More possibility of internal netting for the broker with batching, sounds more efficient.
  - LatteLazy 6y ago
    Yeah, I think end of day would be sufficient at least for now. Maybe someone with more knowledge of the situation will correct me though. I think there can be counterparty risk issues (eg during the 2008 crash) that are removed by immediate clearing/settlement.
- throw0101a 6y ago
  [citation needed] Can you post a link? I know they moved from T+3 to T+2 in 2014, but doing a quick search doesn't reveal any T+0.
epa 6y ago
This post is equivalent to an Op Ed saying World Peace is what society needs. Vlad, we understand you are trying to salvage some of the PR mess that was made by placing the blame on others. This post is lacking substance on next steps and how Robin Hood would like to implement this. While it is not what your Company does, what is your suggestion?
- SpicyLemonZest 6y ago
  The implicit call is that the SEC should push for it and financial institutions should accept the push. I'm not sure there's much to say beyond that; the basic technological principles behind getting real-time information from the NYSE to DTCC are simple and well-understood. The industry just has to invest the time and money required to make it happen.
ForHackernews 6y ago
Yeah, I'm not gonna trust the company that can't write code to handle leap years[0] to do real-time anything. [0] https://www.reddit.com/r/wallstreetbets/comments/fcoaev/and_now_a_brief_flashback_to_four_years_ago_where/ https://www.reddit.com/r/wallstreetbets/comments/fcoaev/and_...
- notsureaboutpg 6y ago
  Not only couldn't write code to handle it but couldn't patch code which mishandled it after it failed publicly!!! How do you have the same leap year bug 4 years later??
paxys 6y ago
Can't believe I'm saying this, but there might be a good Blockchain-based solution out there for this.
- tristanj 6y ago
  They're already looking into using Blockchain for this solution https://www.finextra.com/finextra-downloads/newsdocs/embracing%20disruption%20white%20paper_final_jan-16.pdf https://www.finextra.com/finextra-downloads/newsdocs/embraci...
srcreigh 6y ago
I'm not entirely buying this T+2 narrative. It does not explain why Discord [1] and Facebook [2] were censoring WSB last week. [1]: https://www.theverge.com/2021/1/27/22253251/discord-bans-the-r-wallstreetbets-server https://www.theverge.com/2021/1/27/22253251/discord-bans-the... [2]: https://www.newsweek.com/facebook-robinhood-stock-traders-group-removed-wallstreetbets-gamestop-1565302 https://www.newsweek.com/facebook-robinhood-stock-traders-gr...
- swampthing 6y ago
  Does there have to be one single explanation for 3 separate events?
  - bobthebuilders 6y ago
    Occam's razor. The fact that someone said take down WSB is way simpler than any alternative.
    - dbt00 6y ago
      "Someone" said it and all these people listened? You're going to need more evidence than that.
    - swampthing 6y ago
      Certainly, writing that is simpler than writing out the reasons behind 3 separate events. But I think Occam’s razor is more about actual simplicity, and would cut against arguing that there was an elaborate conspiracy that involves multiple large companies acting against their own interests.
    - jcranmer 6y ago
      Except you're missing the explanation as to why all of the actors have a reason to listen to that person. That's where things stop being simple.
    - duxup 6y ago
      I'm not sure that's more simple than different groups taking different actions for their own reasons.
imcoconut 6y ago
This is robinhood's fault. He's not wrong that instant (or same day) settlement would be better than T+2, but there were plenty of other brokers that did not restrict trading. This was a liquidity issue for robinhood. This is a risk you run being a "cool startup that moves fast and breaks things" in the arena of securities trading. Additionally, Some of the bugs they've experienced are absurd in the context of a broker that potentially houses people's entire liquid net worth, including a bug that reversed the direction of trades - "oh you meant to sell those shares? whoops!"[0]. Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world, eg JP Morgan or Bank of America Merrill Lynch - they have literal trillions in assets each and neither has these issues. I appreciate that robinhood pioneered zero commission trades, but that has been largely adopted by the industry at this point. From my standpoint I only see risks versus their peers and precisely zero benefits. I implore everyone here to stay far away from robinhood. [0] https://www.nytimes.com/2021/02/02/technology/robinhood-ceo-vlad-tenev.html https://www.nytimes.com/2021/02/02/technology/robinhood-ceo-...
- notsureaboutpg 6y ago
  Yeah, you can open a Fidelity account with no minimum and get commission free trades and their app is great. What advantage does Robinhood have in comparison? Outages and low liquidity?
- AmericanChopper 6y ago
  I agree that this is robinhoods fault, and that they have been deceptive in their PR about this, and that their UX workflows are misleading about what’s actually happening... But, plenty of other brokers had the same issue. Including Merrill for instance. I would say that the more concerning issue that this has highlighted is how this part of the system gives large institutions greater access to markets than retail investors get. Addressing a systemic flaw like this seems like the best possible thing that could come out of this controversy.
- pokot0 6y ago
  They are diverting the attention from their core problem: lack of transparency. I had a RH account for years and I didn't know it was a margin account (be sure: I did not signup for their "margin" service). All RH account are margin accounts even if they feel like cash accounts (but with T+0 settlement). This is what triggered their cash problems and what drives people crazy now: a user feels they gave them 100$ to buy 100$ of stocks, while what happens is that you get a loan and they buy some form of stock in their name while committing to you for the value of one stock. Robinhood is the facebook of finance. I moved my money out of them.
tmnstr85 6y ago
When you're getting your face rearranged in one corner of the boxing ring, very often the body tries to naturally move to another corner. Settlement cycles and market censorship are two separate things. It's on robinhood to make sure they can meet the same liquidity standards that banks have been "stress tested" for ever since 2008. Keep in mind that it wasn't 3 years ago where T+2 was just a dream. Real time settlement is going to be driven by centrally governed organizations and their market counterparts (DTCC / SWIFT).
- totalZero 6y ago
  > Keep in mind that it wasn't 3 years ago where T+2 was just a dream. Uh, what? We were already on T+2 three years ago (which was Feb 2018 by my calculations). https://www.sec.gov/news/press-release/2017-68-0 https://www.sec.gov/news/press-release/2017-68-0
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Animats 6y ago
Robinhood could start by arranging that when you withdraw funds from Robinhood, you get them in real time. Minutes. Naw. They settle cash on T+1.[1] Still, that beats PayPal. [1] https://cdn.robinhood.com/assets/robinhood/legal/Customer%20Agreement.pdf https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...
topspin 6y ago
What are the incentives? T+0 would enable the Robinhoods of the world. Are the big players and the regulators they've captured and the legislators they've paid for interested in enabling Robinhood et al. after the events of last week? DOA.
- hervature 6y ago
  You think T+2 is a form of regulatory capture? Any type of regulation that makes it easier for retail to lose their money would be welcomed. When things were delivered by horse, it was T+14, we are now down to T+2 for stocks and bonds (mostly anything related to private industry), T+1 for options and government stuff, and T+0 for futures. Everything is pointing at eventually everything being T+0. I'll repeat, Robinhoods are welcome, especially if they do dumb things like this GME debacle. I expect the big players to lobby for relaxed margin requirements so that they can let retail lose their shirts like the 1930's while they profit by taking the smarter side of trades and insulate themselves by letting the Robinhoods fail in case of market failures.
tptacek 6y ago
Is Robinhood an "industry leader"? T+0 settlement would be an enormous change. Is there any reason every other participant in the market would care what Robinhood thinks about settlement? They were just shown to be too small to participate fully even with their small slice of retail investors.
JumpCrisscross 6y ago
Real time equities settlement and clearing is a terrible idea. It sounds great. But it breaks a lot of good stuff. I'm surprised the CEO of a brokerage is advocating for it. (The article is a bit loose with the terms settlement and clearing. Again, surprising from the CEO of a company that almost got taken out by internal clearing failures.) If you only think about the American stock market from the perspective of a domestic retail day trader, sure, real-time clearing sounds easy enough. When you expand it to institutions, real-time settlement means having to warehouse all the funds they might need to trade with in a day with their prime brokers as cash. Not Treasuries. Cash. Because their broker has to be able to wire out that $1bn instantly. (That's what real-time settlement means. Real-time payments.) For market makers, this effectively requires removing their buyer of last resort obligations since they would be practically capped by their cash on hand. There are additional complexities when one considers foreign investors. Options exercises and expirations. ETFs. Futures. Historically, the loudest advocates for shortening settlement times have been global money centre banks. A switch to real-time settlement and clearing would require every market participant either (a) have flawless payment rails to every other market participant or (b) put all their cash with a global bank who can provide that guarantee. End-of-day or overnight clearing, on the other hand, isn't too much to ask for. It preserves the robustness and extensibility of delayed settlement. But it removes a few days of collateral requirements. Pushing for EOD clearing would be a smarter play for Robinhood, from a government relations perspective. (If this is solely PR then whatever.)
- Forge36 6y ago
  In the U.S. the Federal Reserve is already planning to support it. Thread discussing it from a few days ago.: https://news.ycombinator.com/item?id=25982987 https://news.ycombinator.com/item?id=25982987
  - deleted 6y ago
    [deleted]
  - justapassenger 6y ago
    It’s only for small money transfers, up to $25k last time I’ve looked at it.
amluto 6y ago
I have seen on Twitter that Robinhood was unable to use customer funds to satisfy clearing deposit requirements, but I couldn’t find an actual authoritative source on this. Is this correct? It seems to me that, to secure a $300 purchase buy a customer, Robinhood ought to be able to use that customer’s $300.
- TopInvestor 6y ago
  RH is giving a loan - these are margin accounts. That is why it had to raise $ billions.
  - swampthing 6y ago
    They do have margin accounts, but as I understand it, that was not what caused these deposit requirements to shoot up. I.e. the margin accounts were not what caused the problem.
- usefulcat 6y ago
  Consider the following sequence of events: 1) Custom initiates $300 purchase of some stock. 2) RH sends customer's $300 to counterparty. 3) After receiving the $300 and before delivering stock to RH, counterparty goes belly up. Forbidding RH to use customer funds in that manner prevents that race condition.
  - amluto 6y ago
    This particular issue you cite has little to do with customer funds. Look up delivery-versus-payment. In foreign exchange, for example, one can avoid this issue by settling via a provider like CLS [0]. I’m reasonably confident that stock transactions are immune to the problem you’re imagining. In any case, I think it would be entirely ridiculous for one’s stock broker to front the entire purchase price for each and every stock purchase to secure customers against counterparties who might take the money and not deliver the stock. This would involve the broker coming up with 100% of the price, not merely an amount related to the anticipated worst-case P&L. [0] https://www.cls-group.com/ https://www.cls-group.com/ In this particular instance, I do know what I’m talking about. The story of Herstatt Bank is fascinating.
bionhoward 6y ago
I find it surprising to see Robinhood leadership call for increased speed, when they haven't launched a public API...
- bob1029 6y ago
  I am not surprised they haven't made an API public yet. Looking at how razor-thin their operational margins have been on IT and financial fronts, any hypothetical added load from traders trying to algorithmically hammer some API is probably going to wind up in disaster. I cannot speak for all of the engineering that goes down at Robinhood, but the way their web-based trading interface performed for me was regrettable at best. Never was able to load my history in that interface without my browser getting javascript timeout warnings. Always had to go back to my phone to see what dividends I got paid out. This sort of problem, which strongly-encouraged me to switch to a different broker, does not give me much confidence that other areas of engineering at Robinhood are handled much better.
krick 6y ago
I'm really ignorant about all this securities trading stuff. Can somebody enlighten me to what this change actually means? Or maybe point to some "beginners guide", after which I'd understand what he is talking about?
- totalZero 6y ago
  T+0 means securities and funds change hands instantaneously (or maybe EOD) rather than on the present two-day lag. That two-day process is managed by a clearinghouse that requires members like Robinhood to put up large amounts of money, which Robinhood doesn't have in spades, for clearing and collateral. He's trying to blame that requirement for Robinhood's most recent miserable failure.
  - krick 6y ago
    That far I could vaguely guess, but I don't see any connection between these fact. First off, what do you mean by "Robinhood's most recent miserable failure"? The story as I know it: WSB pumped up GME, somebody (Melvin's Capital) majorly fucked up and lost money, somebody (Blackrock, Citadel, some lucky traders) gained something from the situation, basically, business as usual. Then Robinhood screwed over it's customers, by forbidding them to perform some operations, motives for which remain questionable and may result in a prosecution (because of affiliation with Citadel), but AFAIK that's very theoretical and right now Robinhood didn't really suffer any loss. None of this really fits the description of "miserable failure" on Robinhood's part, as far as I can tell. So what do you mean? Am I missing some details? Is he blaming T+2 for forcing him/Robinhood to prevent users to buy stock? How so? Second, I still don't quite understand what T+2 means. All trades look instantaneous to every particular seller (including all Robinhood clients), right? Also, all trades are recorded by a centralized entity (NYSE), so there also cannot be any disagreement between brokers about how much who owes whom. Actual money/securities movement between brokers is T+2, but in the essence that is just some bureaucratic bullshit, and shouldn't affect broker's clients' (including all Robinhood users) ability to buy stock, right? Also, whatever the current regulations are, Robinhood somehow performed under them until now, so it somehow managed to meet whatever clearinghouse requires of them, right? So, in the essence, I still don't understand what the fuss is about, and how Tenev could possibly blame T+2 for anything (which, btw, I don't see him explicitly do: he doesn't say that it was because of some clearinghouse requirements he was forced suddenly to shut down free trade of stock on his platform, does he?)
clarkmoody 6y ago
Side note: cryptocurrency exchanges perform brokerage, settlement, and clearing continuously and in real-time.
- JumpCrisscross 6y ago
  > cryptocurrency exchanges perform brokerage, settlement, and clearing continuously and in real-time If I sell my Bitcoin on Coinbase, I instantly get the funds in my checking account? Because that's what real-time settlement means. Blockchains dramatically simplify the clearing part of the equation. That simplification comes with costs, however.
  - psychlops 6y ago
    Real-time settlement means that if you sell your bitcoin on coinbase, then the currency you bought (say Dollars) is yours to invest fully or withdraw into another account (say your checking account).
  - vl 6y ago
    If you sell Bitcoin on Gemini for dollars, you can instantly wire dollars to your checking account at your bank. (Haven’t tried Coinbase, so can’t say).
- psychlops 6y ago
  Came here to say this. Crypto exchanges have led the way in real-time clearing and in 24 hour trading. Both of which are better for the consumer.
- satellite2 6y ago
  I'm going to simplify a bit, but there is a big difference in clearing crypto vs cash. Clearing crypto doesn't require debt because your broker directly sends the TX on chain. Doing the same with cash would require sending trucks of cash to their various clients banks throughout the day and would be prohibitely expensive. That's why clearing was invented. I.e. having the bigger banks lending to the smaller and allowing to delay the actual exchange. (And hopefully never having to actually move cash since balance fluctuations between banks tends to be cyclical)
u678u 6y ago
So new entrant joins industry, ruins pricing by giving product away for free, nearly goes under because it over extended itself, and then blames the rules. Yeah I'm sure everyone else wants to do what RH says.
- JumpCrisscross 6y ago
  > new entrant joins industry, ruins pricing by giving product away for free, nearly goes under because it over extended itself, and then blames the rules Credit where it's due: ripping off the commission band-aid was overdue, and Robinhood single handedly caused it. And abridging T+2 is probably a good idea. (Though real-time settlement and clearing is probably not.) What's missing in their communications is the mea culpa. We got into this to make big changes. We made them. One thing we overlooked was this weird bit of the financial system. Here is why we missed it, here is why it is obscure, and here are our tabula rasa suggestions on how it could be improved.
  - ashtonkem 6y ago
    Getting rid of commission was actually probably a bad idea. It creates an expectation that a very complicated service should be free, and puts a lot of pressure on now free brokerages to find a new revenue source. There's a reason why RH is accused of helping Citadel front run their own customers. This seems to me a lot like when VC backed startups artificially suppress prices below break even to push out competitors, with the intent to raise prices even more later. It's good for the consumer while they can get VC subsidized goods and services, then very bad for the consumer once the VC funds dry up.
    - KMag 6y ago
      > There's a reason why RH is accused of helping Citadel front run their own customers. Are there serious accusations of front-running (a serious financial crime) and collusion to facilitate that crime? Or are you referring to people with a poor understanding of the interactions here making complaints that really boil down to privacy concerns, not actual front-running? I haven't seen anyone post any evidence of actual front-running. For why Citadel would pay for retail flow, if they're not committing financial crimes, market making is essentially profiting from separating pricing signal ("alpha") from pricing noise. If the prices are jumping around randomly, you make money by holding prices steady against that noise. If the prices are moving in one direction because new information ("alpha") has become available, you lose money if you try and hold prices steady against those moves. Empirically, in aggregate, retail flow has a lower signal-to-noise ratio (lower alpha) than the market as a whole, so market making on just that flow is more profitable, even though Reg NMS[0] requires Citadel to give RH customers' round-lot orders prices at least one cent per share better than available in the open market (price improvement over NBBO, combined with no sub-penny pricing). By paying to exclusively trade against a low-alpha channel and damp out some of that noise before it affects the market as a whole, Citadel makes more money, at the expense of other market makers who would normally have exposure to that noise. Also, there's a bias in execution called adverse selection: bad trades tend to get filled faster than good trades. For their non-market-making strategies, crossing against low-alpha flow has less adverse selection than trading those strategies on the public markets. Here too, RH customers trading round lots get prices at least 1 cent better per share than NBBO, unless the orders are passed through and placed on a regular public venue. Disclosure: I work in financial services, but have never worked for Citadel. [0] https://www.investopedia.com/terms/r/regulation-nms.asp https://www.investopedia.com/terms/r/regulation-nms.asp
laughingbovine 6y ago
It's time for a new stock market honestly.
foolinaround 6y ago
There seems to be a consensus that Real time Settlement or even real time Clearing might not be feasible, without major risks. Can someone explain what it took to move from T+3 settlement to T+2? Why did they not go from T+3 to T+1? Can clearing be real-time (or near real-time) with settlement happening overnight? Or do they need to be in sync?
vincentmarle 6y ago
Classic 101 PR Crisis Management: Divert, Deflect, Blame Someone Else
deleted 6y ago
[deleted]
cosmotic 6y ago
This post vaguely mentions risk 4 times, but doesn't once explain which risks. Which risks would this mitigate?
Traster 6y ago
So this is like Facebook releasing a statement saying "It's time we were all nicer to each other" right? That genocide we were helping? You guys should figure that out. Hey guys, you know how you run a successful business clearing trades, and we just had to dilute our share in our company 50% because we fucked up our collateral calcuations? Well, we've got an idea. You redesign your entire business so that we don't need collateral, and that way, we no longer have our problem. Also, does anyone find this stupid "we have the best financial system in the world" bullshit a little insulting? It's just jingoistic PR chest beating. Pro-tip: Whenever you're in trouble, talk about how great America is. I'm waiting for Elizabeth Holmes to release a statement about how the CDC should instruct all humans to encode the disease they have into their blood, because then Theranos would be a home run. I guess what I'm saying is: If you're running a business, do your job.
- swampthing 6y ago
  Where are you reading that they messed up their collateral calculations?
  - Traster 6y ago
    They ended up in a situation where they had to prevent trading, draw down their entire credit lines and then do another funding round to shore up $3.4Bn - it's pretty clear they fucked up their collateral.
    - swampthing 6y ago
      Do you consider them having their collateral requirements changed on them at 3am to be them messing up? If your bank tells you your mortgage payment is going to be 10x this month, and you have to scramble to cover that, did you mess up your personal finances?
      - ashtonkem 6y ago
        If you run a brokerage, you should know that collateral requirements can change based on market conditions.
themihai 6y ago
The stocks(GME) are still limited/restricted btw.
loycombinate 6y ago
It’s possible with blockchain. Imagine if each stock had its own blockchain, made up of transactions of shares transferred from one to another, in exchange for a selected stablecoin. Every trade ever done is recorded and available to the public.
rajacombinator 6y ago
These clowns can’t even prevent their customers from using infinite leverage. (See WSB leverage hacks.) Their CEO doesn’t even understand clearinghouse rules. (He said so on TV the other day.) They should STFU and not share their “thoughts” on market structure.
timdaub 6y ago
Funny how the dinosaurs in this thread are arguing whether a < T+2 settlement is possible as fiat transactions are not atomic. In forth semester of computer science, I toyed around with Bitcoin (2014?). A client had asked me to build a crypto exchange and so I faced the problem of when to credit a user Bitcoin that they sent to exchange-generated addresses. Turns out the whitepaper specifically addressed this problem and by waiting 6 blocks, Bitcoin was designed to have such low probability of a chain reorganization that I was safely settled (finality in 60mins). That's how I built it, and it's also the way that 99% of centralized exchanges operate today.
executive 6y ago
It's Time for Vlad to Admit to Liquidity Issues
knorker 6y ago
They are just trying to get on the side of the mob, with this.
TopInvestor 6y ago
https://dailycaller.com/2021/02/02/robinhood-hedge-funds-citadel-order-flows-gamestop-stock-market/ https://dailycaller.com/2021/02/02/robinhood-hedge-funds-cit... Robinhood Made Nearly $700 Million By Selling User Data To Hedge Funds RobinHood is the Facebook of investing. There’s a reason it doesn’t charge you for trades. It sells information about your trades instead. It’s far more lucrative and explains why it’s willing to stop you from trading since you’re not really a customer-just a user/data point Robinhood has long branded itself as an accessible platform that provides free financial services for its users. Its mission statement includes a pledge to “democratize finance for all.” But the company makes money by selling its order flow — information about user transactions — to third party clients who actually enact trades with access to user data. Trades may be commission free for Robinhood users but they are actually sold to “market makers” that often used their position as the middle man to generate profit, according to the Financial Times. Most of these “market makers” are hedge funds or other institutional investors that financially benefit from more trade and market volatility. It’s big customer, by the way—the one it cares about more than you—that’s Citadel, which pays for Robinhood’s order flow. It also happens to be the biggest investor in the hedge fund that just got bankrupted by the Game Stop short squeeze on RobinHood. Robinhood was fined $65 million by the Securities and Exchange Commission (SEC) in December for “misleading statements and omissions” regarding its payment for order flow process. The SEC concluded that Robinhood “deprived” users of $34.1 million after providing their order flow to clients that prioritized higher revenue over providing the best price for customers. Robinhood’s largest clients for order flow are all hedge funds and other institutional investors according to an SEC filing from 2020. More than half of the company’s market orders were purchased by Citadel Securities — an affiliate of the hedge fund Citadel LLC. According to SEC filings from 2020, other institutional investors that purchased Robinhood’s order flow included hedge funds G1X Execution Services LLC and Two Sigma Securities LLC along with brokerage firms Wolverine Securities LLC and Virtu Americas LLC. Robinhood’s terms of service notes that certain content “is furnished by third parties” and specifies that neither the company nor third party provides are liable for damages. The company’s user agreement also requires investors using the app to “authorize or allow third parties” to gain access to services including market data and account information.
TopInvestor 6y ago
https://www.theamericanconservative.com/articles/our-oligarchs-crisis-of-confidence/ https://www.theamericanconservative.com/articles/our-oligarc... That’s one of the key takeaways here: these people are far too desperate to be as nefarious as we might think. The more outrageous aspects of the last few months—from Twitter censorship to post-election whiplash—may be best understood not as the first flashes of an ascendant tyranny, but as a flurry of idiotic moves by an elite who clearly have much less faith in their hold on power than we do. The wild saga of GameStop’s stock adventures over the past week or so is a perfect illustration of the point. When users of the subreddit r/wallstreetbets decided to invest in the video game chain, the price of the stock skyrocketed to peaks well over $400 (six months ago it was closer to $4). The move resulted in jaw-dropping profits for some of the amateur traders—and a whole lot of anger from the Wall Street establishment. Hedge funds and other big-dollar investors who had shorted the stock have lost over $5 billion altogether from the episode. So what did our robust market system do? Simple: citing market volatility, Robinhood and other day-trading services just restricted transactions on GameStop and other WallStreetBets picks. The big funds, meanwhile, were free to continue trading as normal. Besides giving the big guys a chance to get their ducks in a row, the freeze caused the stock to crash on Thursday morning, costing many amateur investors a pretty penny. It’s corrupt and immoral, and I’d be mad as hell if I’d been smart enough to get in on the GameStop craze. But it’s not the kind of thing that confident oligarchs do. It suggests the same fear that’s motivated so many decisions by people in power these past few months. Not to mention it may spark a backlash that will be well worth watching—and that may yet change our course in surprising ways. I’m as wary of the Wall Street-Silicon Valley-Washington axis as anyone. But it’s hard to be too afraid of any regime that can be thrown into such a devastating panic by a horde of Redditors buying GameStop stock from laptops in their mothers’ basements—or, for that matter, by a virus, or an election, or the host of The Apprentice.

257 points by marc__1 6y ago

baby steps, maybe we can go to overnight settlement first. Robinhood please bring options on cme bitcoin futures to the masses.

h1srf 6y ago
Ccan you trade futures on RH yet? Why would they allow options on futures if they don't allow futures trades

hehehaha 6y ago

I don’t even know what to say about this. It doesn’t sound like he learned his lessons at all. He’s calling for real-time settlement which is not practical for equities. On top of that he completely dismissed RH’s root problems: very loose margins and new account standards. I was defending RH on HN last week but I have to reconsider.

zaroth 6y ago
Robinhood got called up at 3am with an extortion demand for $3 billion due that morning, unless they shut off Buy orders of GME. The collateral call had nothing to do with Robinhood’s ability to pay for the orders it was placing. The problem was the GME short sellers were insolvent at the prices the stock was trading at, and contagion from the hedges failing would have left the clearinghouse looking at billions in loses.
- mike_d 6y ago
  Which is why you push back and tell the clearinghouse to make a public statement to that effect. The CH is faced with two options: One, make the statement and hurt a public reputation they don't care about in the first place. Or they could cut off all trading to RH, which puts RH on the same side of the fight as they have been trying to market themselves as being on from the beginning. Win win.
  - justlurkin12 6y ago
    Actually if RH didn't wire over the funds, they would be dissolved due to illiquidity.
  - ABeeSea 6y ago
    I don’t think it was the CH’s choice. I believe the collateral requirements are set in Dodd-Frank. And financial firms don’t go j to extended bankruptcies when they run out of cash like other companies. They immediately go into receivership and/or liquidation. Trying to play chicken with the CH would have just ended RH as a company pretty much immediately.
    - mike_d 6y ago
      If it was a regulatory requirement, then they should have been put in to receivership immediately. Being unable to meet colleterial requirements means they extended credit beyond their means.
      - ABeeSea 6y ago
        They never went over the threshold because they turned off buying for the most volatile stocks.
- ZephyrBlu 6y ago
  Sorry, what? I can't tell if you're serious. Robinhood didn't get extorted, their clearinghouse told them they needed more capital to secure further $GME trades, because the volatility has been off the charts. Vlad even states this in the article! > Clearinghouse deposit requirements skyrocketed overnight ... > The clearinghouse deposit requirements are designed to mitigate risk
  - unethical_ban 6y ago
    I think the point is, the effect of that sudden change was the screwing over of retail investors at the expense of funds and firms that weren't locked out. And that RH should have seen this coming if it were all "by the book". And how the hell can those fees go up so instantly? If we're going to be all "free market" about how only the strong survive, RH should be eliminated.
    - ZephyrBlu 6y ago
      It _was_ by the book and they _should_ have seen it coming. "How do clearinghouses determine how much is required? It’s pretty technical, but the process basically works as follows: clearinghouses look at a firm’s customer holdings as a portfolio. They use a volatility multiplier, looking at specific stocks, to quantify their risk. The clearinghouse may assign significant additional charges based on how much of one stock a firm’s customers hold. If a firm’s customers have more buy than sell orders, and the securities they’re buying are more volatile, the deposit requirement will be higher. Clearinghouses can also require additional deposits if certain thresholds are met." https://www.streetinsider.com/Corporate+News/Robinhood+Blames+Clearinghouse+For+Limits+on+Trading+in+GameStop+%28GME%29%2C+AMC+%28AMC%29%2C+Others/17890266.html https://www.streetinsider.com/Corporate+News/Robinhood+Blame...
      - unethical_ban 6y ago
        Do you agree, then, that RH should be punished, if not dismembered as an entity, for incompetence leading to billions in stock losses?
justlurkin12 6y ago
dumb question, why is not practical? As for the root problems, those are not related to the issue from last week (not sure if you're aware, but margin had no factor in play with the DTCC requirements).
- hehehaha 6y ago
  There are many reasons but most importantly, delayed settlement serves as fraud deterrent and error/exception handling. Should be T+1 same as options. Think of it as a database, do you want instantaneous non-reversible commits by default when transactions number in the billions with known error rate? Or perhaps have a reasonable buffer for safety?
  - justlurkin12 6y ago
    T+0 implies same day not instant. I think you can enable all of those features with hours of delay instead of days.
    - hehehaha 6y ago
      I can maybe see T-0. But I am pretty sure Vlad is talking about near real-time. Even with T-0, most of the trading is done in the last ten minutes at 3:50 EST (due to vwap). I don’t see the benefit in settling T-0 outweighing the value of safety net provided by extra time overnight.
  - unethical_ban 6y ago
    Why are reasonable buffers done in days? Why should fraud prevention be done by lag, rather than proper IAM? And non-malicious errors are reversible.
  - PeterisP 6y ago
    For cash, pretty much every country has a functioning real time gross settlement system that manages to do essentially instantaneous non-reversible commits by default and carries all the large payments and the netting settlements for all kinds of smaller bundled payments. Yes, there are risks, errors and fraud - but if that's manageable for very, very large amounts of cash, why wouldn't it be for stock?
mikelward 6y ago
Why is it not practical?
kelnos 6y ago
> He’s calling for real-time settlement which is not practical for equities. Why not? In most cases share ownership is just a row or two in some database. If you can update those in real time (which you should; a legacy system that doesn't support this can be upgraded, even if at significant cost in implementation and testing), and do instant (or near-instant) funds transfers, you should be able to settle within minutes. Certainly same-day, at least. Now, I would accept that maybe instant settlement is not desirable. Maybe it's good to be able to reverse fraudulent or illegal trades before money fully changes hands, for example. But that's a different thing.
- deleted 6y ago
  [deleted]

tristanj 6y ago

It's a good thing that DTCC aware of this issue and is looking into accelerating this to T+1 (followed by T+0) using blockchain and distributed ledgers. https://www.finextra.com/finextra-downloads/newsdocs/embracing%20disruption%20white%20paper_final_jan-16.pdf https://www.finextra.com/finextra-downloads/newsdocs/embraci... Edit: No clue why this is downvoted.

sam_lowry_ 6y ago
How come I know for sure this will fail?
- silverfox17 6y ago
  Probably blockchain
  - choeger 6y ago
    They could mitigate by using a quantity of ML and mix in some good old-fashioned Big Data. As a side note, we need a defined unit for the quantity of hiptech in a software project. I propose one AI (= 100 Microservices).
    - MattGaiser 6y ago
      Better add in some cloud just to be sure and at least one IoT developer for premise security.
    - LatteLazy 6y ago
      Don't forget the eye-of-newt... ;)
vmchale 6y ago
Why is blockchain involved?
- scubbo 6y ago

azifali 6y ago

I am not quite sure if everyone else is ready for this.

ssivark 6y ago

Out of curiosity, are there any reasons to prefer slower settlement? (Since this seems like a no-brainer, but clearly hasn’t happened already)

dan-robertson 6y ago
Some ability to net—that is to buy at one price, sell at another, and only settle the difference—is probably desirable
- freeone3000 6y ago
  Sure, but end of day settlement (like is practiced on TSX!) has all of the reasonable benefits of T+2 settlement, while still taking place in an understandable time frame.
  - throw0101a 6y ago
    If TSX = Toronto Stock eXchange, I do not think that is correct: * https://www.tsx.com/news?id=533&year=2017 https://www.tsx.com/news?id=533&year=2017 In Canada it's done by CDS Clearing and Depository Services Inc. (CDS) and is currently T+2 just like in the EU (2014) and US (2017). A 2015 whitepaper discussing the (then) proposed change: * PDF: https://www.cds.ca/resource/en/174 https://www.cds.ca/resource/en/174
tomatocracy 6y ago
There are reasons to prefer settlement is not instantaneous - eg it makes fat finger trades easier to unwind. There are also probably some special cases like creation/destruction of ETF shares, ADRs, IPO greenshoe etc which take a bit longer to work through. But I think the main reason for these changes being slow to occur is because noone wanted to break the system in the process - the settlement process for share trades in the US is/was viewed as quite fragile due to the way it had evolved over time.
- atombender 6y ago

300bps 6y ago

US Equities recently changed from T+3 to T+2: https://www.sec.gov/news/press-release/2017-68-0 https://www.sec.gov/news/press-release/2017-68-0 There are many types of securities that are already settling at T+0.

the_mitsuhiko 6y ago
What does T+0 mean? Instantly or same day?
- tobyjsullivan 6y ago
  According to [0]: > 'T' is the transaction date If that's an accurate definition, then it's safe to say it would technically mean same day. Simultaneously, if we want to be technically accurate to a pedantic level, "instant" would be impossible given speed limits of information transmission (speed of light), etc. So "T+0" couldn't mean "instant" in any case. Maybe some settlements are, in fact, near-instant but I don't think that's implied by "T+0". [0] https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/ https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t...
- 300bps 6y ago
  Same day settlement. Definitely not instant.
kolbe 6y ago
It blew my mind when they went from T+3 to T+2. I couldn't fathom why they would go about changing it, but not go to overnight settlement. Government, though.
- aeyes 6y ago
  You might be surprised how much of the modern world is running on CSV files on FTPs.
- throw0101a 6y ago
  > Government, though. Equities clearing and settlement is done privately: * https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_... If the members of the DTCC want to have it done faster, they'll request it. There's been talk, but it involves everyone agreeing to it and changing their internal workflows as well AFAICT.

jeffbee 6y ago

Wouldn't real-time settlement have completely destroyed RH last week? How would they have funded trading?

justlurkin12 6y ago
Real time securities wouldn't need brokerages to front collateral while the trades settle by the virtue of no settling period. They would only have to deal with customer capital used to buy the stock.
- kelnos 6y ago
  Wasn't a big part of this issue fueled by RH fronting the money for trades when the customer was transferring money into their account from a bank over ACH? Making ACH instant (which I believe is in the works) would solve that, not T+0 for settlement. (I don't have a good feel for what was the bigger driver of RH's issues though: overextension because of slow ACH or slow trade settlement.)
  - stu2b50 6y ago
    No, brokers must front collateral to clearing firms simply because there's no inherent reason to trust any of the firms will have their capital or equity obligations in T+2 days. ACH transfers and margin, although possible reasons why a firm wouldn't have funds, are not the direct reason, which is DTCC requirements.
    - deleted 6y ago
      [deleted]
  - paxys 6y ago
    No, that was negligible. Robinhood actually fronts the least money out of all major brokers (something like $1000). And if that was the case the easy solution would be to block trades if your account didn't have the sufficient settled balance.

kzrdude 6y ago

Robin hood has been called so many strange names and then gets no recognition when they want to strike at the root of the problem.

marcinzm 6y ago
Robinhood knew A was the case when it did B. Given A, B can cause really bad things. Then it failed to properly communicate as the bad things started to happen. Now it's blaming A rather than its decision to do B or its failure to communicate.
paxys 6y ago
The whole episode has been a case study for how not to handle PR. Robinhood lost the public narrative every step of the way, and all their statements were late, lacking in detail and even contradictory. Remember the now-famous "we don't have a cash flow problem" statement from their CEO, right before they had to borrow a billion dollars to stay in business?
- ummonk 6y ago
  Right, and it is noteworthy to compare the PR from Webull in response to similar issues. RobinHood’s PR problems are entirely self-inflicted.
  - swampthing 6y ago
    Agreed. It's sad/shocking to see a China-run company out-execute a homegrown, well-funded US startup on public relations with the US market.
IgorPartola 6y ago
The simple issue that I saw with RH is that they restricted the ability to buy stocks like GME but not the ability to sell. It’s one thing to freeze the stock in place. It’s an entirely different thing to basically create a situation where your actions drive the price down while only letting investors sell. I will be honest I don’t entirely grasp the situation, but this seems to me like it was not just a bad PR situation but rather that they actually did something wrong.

deleted 6y ago

[deleted]

hinkley 6y ago

Would it make sense for securities places to charge each other interest for unsettled trades? You’d make more profit then if you could settle your trades faster, making it more carrot than stick. Something like the overnight rate banks charge each.

deleted 6y ago
[deleted]

CyberRabbi 6y ago

> When people invest, they’re placing their hopes and dreams for the future in our financial system. We can’t let them down. This is probably generally true but that investment behavior is not what drove their clearinghouse failure. I wish they would quit it with the fluffy rhetoric. Why doesn’t Robinhood understand that we want straight answers from them.

mikegreen 6y ago
But "When people invest" - This isn't investment behavior. This is speculation and most likely simple addiction to gambling behavior they drive and incent people to do.

LatteLazy 6y ago

It is. The EU has a road map to get it down to T+0 (same day) I believe. That's not real time but its a start...

tonfa 6y ago
It's probably the right tradeoff though? More possibility of internal netting for the broker with batching, sounds more efficient.
- LatteLazy 6y ago
  Yeah, I think end of day would be sufficient at least for now. Maybe someone with more knowledge of the situation will correct me though. I think there can be counterparty risk issues (eg during the 2008 crash) that are removed by immediate clearing/settlement.
throw0101a 6y ago
[citation needed] Can you post a link? I know they moved from T+3 to T+2 in 2014, but doing a quick search doesn't reveal any T+0.

epa 6y ago

This post is equivalent to an Op Ed saying World Peace is what society needs. Vlad, we understand you are trying to salvage some of the PR mess that was made by placing the blame on others. This post is lacking substance on next steps and how Robin Hood would like to implement this. While it is not what your Company does, what is your suggestion?

SpicyLemonZest 6y ago
The implicit call is that the SEC should push for it and financial institutions should accept the push. I'm not sure there's much to say beyond that; the basic technological principles behind getting real-time information from the NYSE to DTCC are simple and well-understood. The industry just has to invest the time and money required to make it happen.

ForHackernews 6y ago

Yeah, I'm not gonna trust the company that can't write code to handle leap years[0] to do real-time anything. [0] https://www.reddit.com/r/wallstreetbets/comments/fcoaev/and_now_a_brief_flashback_to_four_years_ago_where/ https://www.reddit.com/r/wallstreetbets/comments/fcoaev/and_...

notsureaboutpg 6y ago
Not only couldn't write code to handle it but couldn't patch code which mishandled it after it failed publicly!!! How do you have the same leap year bug 4 years later??

paxys 6y ago

Can't believe I'm saying this, but there might be a good Blockchain-based solution out there for this.

tristanj 6y ago
They're already looking into using Blockchain for this solution https://www.finextra.com/finextra-downloads/newsdocs/embracing%20disruption%20white%20paper_final_jan-16.pdf https://www.finextra.com/finextra-downloads/newsdocs/embraci...

srcreigh 6y ago

I'm not entirely buying this T+2 narrative. It does not explain why Discord [1] and Facebook [2] were censoring WSB last week. [1]: https://www.theverge.com/2021/1/27/22253251/discord-bans-the-r-wallstreetbets-server https://www.theverge.com/2021/1/27/22253251/discord-bans-the... [2]: https://www.newsweek.com/facebook-robinhood-stock-traders-group-removed-wallstreetbets-gamestop-1565302 https://www.newsweek.com/facebook-robinhood-stock-traders-gr...

swampthing 6y ago
Does there have to be one single explanation for 3 separate events?
- bobthebuilders 6y ago
  Occam's razor. The fact that someone said take down WSB is way simpler than any alternative.
  - dbt00 6y ago
    "Someone" said it and all these people listened? You're going to need more evidence than that.
  - swampthing 6y ago
    Certainly, writing that is simpler than writing out the reasons behind 3 separate events. But I think Occam’s razor is more about actual simplicity, and would cut against arguing that there was an elaborate conspiracy that involves multiple large companies acting against their own interests.
  - jcranmer 6y ago
    Except you're missing the explanation as to why all of the actors have a reason to listen to that person. That's where things stop being simple.
  - duxup 6y ago
    I'm not sure that's more simple than different groups taking different actions for their own reasons.

imcoconut 6y ago

This is robinhood's fault. He's not wrong that instant (or same day) settlement would be better than T+2, but there were plenty of other brokers that did not restrict trading. This was a liquidity issue for robinhood. This is a risk you run being a "cool startup that moves fast and breaks things" in the arena of securities trading. Additionally, Some of the bugs they've experienced are absurd in the context of a broker that potentially houses people's entire liquid net worth, including a bug that reversed the direction of trades - "oh you meant to sell those shares? whoops!"[0]. Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world, eg JP Morgan or Bank of America Merrill Lynch - they have literal trillions in assets each and neither has these issues. I appreciate that robinhood pioneered zero commission trades, but that has been largely adopted by the industry at this point. From my standpoint I only see risks versus their peers and precisely zero benefits. I implore everyone here to stay far away from robinhood. [0] https://www.nytimes.com/2021/02/02/technology/robinhood-ceo-vlad-tenev.html https://www.nytimes.com/2021/02/02/technology/robinhood-ceo-...

notsureaboutpg 6y ago
Yeah, you can open a Fidelity account with no minimum and get commission free trades and their app is great. What advantage does Robinhood have in comparison? Outages and low liquidity?
AmericanChopper 6y ago
I agree that this is robinhoods fault, and that they have been deceptive in their PR about this, and that their UX workflows are misleading about what’s actually happening... But, plenty of other brokers had the same issue. Including Merrill for instance. I would say that the more concerning issue that this has highlighted is how this part of the system gives large institutions greater access to markets than retail investors get. Addressing a systemic flaw like this seems like the best possible thing that could come out of this controversy.
pokot0 6y ago
They are diverting the attention from their core problem: lack of transparency. I had a RH account for years and I didn't know it was a margin account (be sure: I did not signup for their "margin" service). All RH account are margin accounts even if they feel like cash accounts (but with T+0 settlement). This is what triggered their cash problems and what drives people crazy now: a user feels they gave them 100$ to buy 100$ of stocks, while what happens is that you get a loan and they buy some form of stock in their name while committing to you for the value of one stock. Robinhood is the facebook of finance. I moved my money out of them.

tmnstr85 6y ago

When you're getting your face rearranged in one corner of the boxing ring, very often the body tries to naturally move to another corner. Settlement cycles and market censorship are two separate things. It's on robinhood to make sure they can meet the same liquidity standards that banks have been "stress tested" for ever since 2008. Keep in mind that it wasn't 3 years ago where T+2 was just a dream. Real time settlement is going to be driven by centrally governed organizations and their market counterparts (DTCC / SWIFT).

totalZero 6y ago
> Keep in mind that it wasn't 3 years ago where T+2 was just a dream. Uh, what? We were already on T+2 three years ago (which was Feb 2018 by my calculations). https://www.sec.gov/news/press-release/2017-68-0 https://www.sec.gov/news/press-release/2017-68-0

deleted 6y ago

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Animats 6y ago

Robinhood could start by arranging that when you withdraw funds from Robinhood, you get them in real time. Minutes. Naw. They settle cash on T+1.[1] Still, that beats PayPal. [1] https://cdn.robinhood.com/assets/robinhood/legal/Customer%20Agreement.pdf https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...

topspin 6y ago

What are the incentives? T+0 would enable the Robinhoods of the world. Are the big players and the regulators they've captured and the legislators they've paid for interested in enabling Robinhood et al. after the events of last week? DOA.

hervature 6y ago
You think T+2 is a form of regulatory capture? Any type of regulation that makes it easier for retail to lose their money would be welcomed. When things were delivered by horse, it was T+14, we are now down to T+2 for stocks and bonds (mostly anything related to private industry), T+1 for options and government stuff, and T+0 for futures. Everything is pointing at eventually everything being T+0. I'll repeat, Robinhoods are welcome, especially if they do dumb things like this GME debacle. I expect the big players to lobby for relaxed margin requirements so that they can let retail lose their shirts like the 1930's while they profit by taking the smarter side of trades and insulate themselves by letting the Robinhoods fail in case of market failures.

tptacek 6y ago

Is Robinhood an "industry leader"? T+0 settlement would be an enormous change. Is there any reason every other participant in the market would care what Robinhood thinks about settlement? They were just shown to be too small to participate fully even with their small slice of retail investors.

JumpCrisscross 6y ago

Real time equities settlement and clearing is a terrible idea. It sounds great. But it breaks a lot of good stuff. I'm surprised the CEO of a brokerage is advocating for it. (The article is a bit loose with the terms settlement and clearing. Again, surprising from the CEO of a company that almost got taken out by internal clearing failures.) If you only think about the American stock market from the perspective of a domestic retail day trader, sure, real-time clearing sounds easy enough. When you expand it to institutions, real-time settlement means having to warehouse all the funds they might need to trade with in a day with their prime brokers as cash. Not Treasuries. Cash. Because their broker has to be able to wire out that $1bn instantly. (That's what real-time settlement means. Real-time payments.) For market makers, this effectively requires removing their buyer of last resort obligations since they would be practically capped by their cash on hand. There are additional complexities when one considers foreign investors. Options exercises and expirations. ETFs. Futures. Historically, the loudest advocates for shortening settlement times have been global money centre banks. A switch to real-time settlement and clearing would require every market participant either (a) have flawless payment rails to every other market participant or (b) put all their cash with a global bank who can provide that guarantee. End-of-day or overnight clearing, on the other hand, isn't too much to ask for. It preserves the robustness and extensibility of delayed settlement. But it removes a few days of collateral requirements. Pushing for EOD clearing would be a smarter play for Robinhood, from a government relations perspective. (If this is solely PR then whatever.)

Forge36 6y ago
In the U.S. the Federal Reserve is already planning to support it. Thread discussing it from a few days ago.: https://news.ycombinator.com/item?id=25982987 https://news.ycombinator.com/item?id=25982987
- deleted 6y ago
  [deleted]
- justapassenger 6y ago
  It’s only for small money transfers, up to $25k last time I’ve looked at it.

amluto 6y ago

I have seen on Twitter that Robinhood was unable to use customer funds to satisfy clearing deposit requirements, but I couldn’t find an actual authoritative source on this. Is this correct? It seems to me that, to secure a $300 purchase buy a customer, Robinhood ought to be able to use that customer’s $300.

TopInvestor 6y ago
RH is giving a loan - these are margin accounts. That is why it had to raise $ billions.
- swampthing 6y ago
  They do have margin accounts, but as I understand it, that was not what caused these deposit requirements to shoot up. I.e. the margin accounts were not what caused the problem.
usefulcat 6y ago
Consider the following sequence of events: 1) Custom initiates $300 purchase of some stock. 2) RH sends customer's $300 to counterparty. 3) After receiving the $300 and before delivering stock to RH, counterparty goes belly up. Forbidding RH to use customer funds in that manner prevents that race condition.
- amluto 6y ago
  This particular issue you cite has little to do with customer funds. Look up delivery-versus-payment. In foreign exchange, for example, one can avoid this issue by settling via a provider like CLS [0]. I’m reasonably confident that stock transactions are immune to the problem you’re imagining. In any case, I think it would be entirely ridiculous for one’s stock broker to front the entire purchase price for each and every stock purchase to secure customers against counterparties who might take the money and not deliver the stock. This would involve the broker coming up with 100% of the price, not merely an amount related to the anticipated worst-case P&L. [0] https://www.cls-group.com/ https://www.cls-group.com/ In this particular instance, I do know what I’m talking about. The story of Herstatt Bank is fascinating.

bionhoward 6y ago

I find it surprising to see Robinhood leadership call for increased speed, when they haven't launched a public API...

bob1029 6y ago
I am not surprised they haven't made an API public yet. Looking at how razor-thin their operational margins have been on IT and financial fronts, any hypothetical added load from traders trying to algorithmically hammer some API is probably going to wind up in disaster. I cannot speak for all of the engineering that goes down at Robinhood, but the way their web-based trading interface performed for me was regrettable at best. Never was able to load my history in that interface without my browser getting javascript timeout warnings. Always had to go back to my phone to see what dividends I got paid out. This sort of problem, which strongly-encouraged me to switch to a different broker, does not give me much confidence that other areas of engineering at Robinhood are handled much better.

krick 6y ago

I'm really ignorant about all this securities trading stuff. Can somebody enlighten me to what this change actually means? Or maybe point to some "beginners guide", after which I'd understand what he is talking about?

totalZero 6y ago
T+0 means securities and funds change hands instantaneously (or maybe EOD) rather than on the present two-day lag. That two-day process is managed by a clearinghouse that requires members like Robinhood to put up large amounts of money, which Robinhood doesn't have in spades, for clearing and collateral. He's trying to blame that requirement for Robinhood's most recent miserable failure.
- krick 6y ago
  That far I could vaguely guess, but I don't see any connection between these fact. First off, what do you mean by "Robinhood's most recent miserable failure"? The story as I know it: WSB pumped up GME, somebody (Melvin's Capital) majorly fucked up and lost money, somebody (Blackrock, Citadel, some lucky traders) gained something from the situation, basically, business as usual. Then Robinhood screwed over it's customers, by forbidding them to perform some operations, motives for which remain questionable and may result in a prosecution (because of affiliation with Citadel), but AFAIK that's very theoretical and right now Robinhood didn't really suffer any loss. None of this really fits the description of "miserable failure" on Robinhood's part, as far as I can tell. So what do you mean? Am I missing some details? Is he blaming T+2 for forcing him/Robinhood to prevent users to buy stock? How so? Second, I still don't quite understand what T+2 means. All trades look instantaneous to every particular seller (including all Robinhood clients), right? Also, all trades are recorded by a centralized entity (NYSE), so there also cannot be any disagreement between brokers about how much who owes whom. Actual money/securities movement between brokers is T+2, but in the essence that is just some bureaucratic bullshit, and shouldn't affect broker's clients' (including all Robinhood users) ability to buy stock, right? Also, whatever the current regulations are, Robinhood somehow performed under them until now, so it somehow managed to meet whatever clearinghouse requires of them, right? So, in the essence, I still don't understand what the fuss is about, and how Tenev could possibly blame T+2 for anything (which, btw, I don't see him explicitly do: he doesn't say that it was because of some clearinghouse requirements he was forced suddenly to shut down free trade of stock on his platform, does he?)

clarkmoody 6y ago

Side note: cryptocurrency exchanges perform brokerage, settlement, and clearing continuously and in real-time.

JumpCrisscross 6y ago
> cryptocurrency exchanges perform brokerage, settlement, and clearing continuously and in real-time If I sell my Bitcoin on Coinbase, I instantly get the funds in my checking account? Because that's what real-time settlement means. Blockchains dramatically simplify the clearing part of the equation. That simplification comes with costs, however.
- psychlops 6y ago
  Real-time settlement means that if you sell your bitcoin on coinbase, then the currency you bought (say Dollars) is yours to invest fully or withdraw into another account (say your checking account).
- vl 6y ago
  If you sell Bitcoin on Gemini for dollars, you can instantly wire dollars to your checking account at your bank. (Haven’t tried Coinbase, so can’t say).
psychlops 6y ago
Came here to say this. Crypto exchanges have led the way in real-time clearing and in 24 hour trading. Both of which are better for the consumer.
satellite2 6y ago
I'm going to simplify a bit, but there is a big difference in clearing crypto vs cash. Clearing crypto doesn't require debt because your broker directly sends the TX on chain. Doing the same with cash would require sending trucks of cash to their various clients banks throughout the day and would be prohibitely expensive. That's why clearing was invented. I.e. having the bigger banks lending to the smaller and allowing to delay the actual exchange. (And hopefully never having to actually move cash since balance fluctuations between banks tends to be cyclical)

u678u 6y ago

So new entrant joins industry, ruins pricing by giving product away for free, nearly goes under because it over extended itself, and then blames the rules. Yeah I'm sure everyone else wants to do what RH says.

JumpCrisscross 6y ago
> new entrant joins industry, ruins pricing by giving product away for free, nearly goes under because it over extended itself, and then blames the rules Credit where it's due: ripping off the commission band-aid was overdue, and Robinhood single handedly caused it. And abridging T+2 is probably a good idea. (Though real-time settlement and clearing is probably not.) What's missing in their communications is the mea culpa. We got into this to make big changes. We made them. One thing we overlooked was this weird bit of the financial system. Here is why we missed it, here is why it is obscure, and here are our tabula rasa suggestions on how it could be improved.
- ashtonkem 6y ago
  Getting rid of commission was actually probably a bad idea. It creates an expectation that a very complicated service should be free, and puts a lot of pressure on now free brokerages to find a new revenue source. There's a reason why RH is accused of helping Citadel front run their own customers. This seems to me a lot like when VC backed startups artificially suppress prices below break even to push out competitors, with the intent to raise prices even more later. It's good for the consumer while they can get VC subsidized goods and services, then very bad for the consumer once the VC funds dry up.
  - KMag 6y ago
    > There's a reason why RH is accused of helping Citadel front run their own customers. Are there serious accusations of front-running (a serious financial crime) and collusion to facilitate that crime? Or are you referring to people with a poor understanding of the interactions here making complaints that really boil down to privacy concerns, not actual front-running? I haven't seen anyone post any evidence of actual front-running. For why Citadel would pay for retail flow, if they're not committing financial crimes, market making is essentially profiting from separating pricing signal ("alpha") from pricing noise. If the prices are jumping around randomly, you make money by holding prices steady against that noise. If the prices are moving in one direction because new information ("alpha") has become available, you lose money if you try and hold prices steady against those moves. Empirically, in aggregate, retail flow has a lower signal-to-noise ratio (lower alpha) than the market as a whole, so market making on just that flow is more profitable, even though Reg NMS[0] requires Citadel to give RH customers' round-lot orders prices at least one cent per share better than available in the open market (price improvement over NBBO, combined with no sub-penny pricing). By paying to exclusively trade against a low-alpha channel and damp out some of that noise before it affects the market as a whole, Citadel makes more money, at the expense of other market makers who would normally have exposure to that noise. Also, there's a bias in execution called adverse selection: bad trades tend to get filled faster than good trades. For their non-market-making strategies, crossing against low-alpha flow has less adverse selection than trading those strategies on the public markets. Here too, RH customers trading round lots get prices at least 1 cent better per share than NBBO, unless the orders are passed through and placed on a regular public venue. Disclosure: I work in financial services, but have never worked for Citadel. [0] https://www.investopedia.com/terms/r/regulation-nms.asp https://www.investopedia.com/terms/r/regulation-nms.asp

laughingbovine 6y ago

It's time for a new stock market honestly.

foolinaround 6y ago

There seems to be a consensus that Real time Settlement or even real time Clearing might not be feasible, without major risks. Can someone explain what it took to move from T+3 settlement to T+2? Why did they not go from T+3 to T+1? Can clearing be real-time (or near real-time) with settlement happening overnight? Or do they need to be in sync?

vincentmarle 6y ago

Classic 101 PR Crisis Management: Divert, Deflect, Blame Someone Else

deleted 6y ago

[deleted]

cosmotic 6y ago

This post vaguely mentions risk 4 times, but doesn't once explain which risks. Which risks would this mitigate?

Traster 6y ago

So this is like Facebook releasing a statement saying "It's time we were all nicer to each other" right? That genocide we were helping? You guys should figure that out. Hey guys, you know how you run a successful business clearing trades, and we just had to dilute our share in our company 50% because we fucked up our collateral calcuations? Well, we've got an idea. You redesign your entire business so that we don't need collateral, and that way, we no longer have our problem. Also, does anyone find this stupid "we have the best financial system in the world" bullshit a little insulting? It's just jingoistic PR chest beating. Pro-tip: Whenever you're in trouble, talk about how great America is. I'm waiting for Elizabeth Holmes to release a statement about how the CDC should instruct all humans to encode the disease they have into their blood, because then Theranos would be a home run. I guess what I'm saying is: If you're running a business, do your job.

swampthing 6y ago
Where are you reading that they messed up their collateral calculations?
- Traster 6y ago
  They ended up in a situation where they had to prevent trading, draw down their entire credit lines and then do another funding round to shore up $3.4Bn - it's pretty clear they fucked up their collateral.
  - swampthing 6y ago
    Do you consider them having their collateral requirements changed on them at 3am to be them messing up? If your bank tells you your mortgage payment is going to be 10x this month, and you have to scramble to cover that, did you mess up your personal finances?
    - ashtonkem 6y ago
      If you run a brokerage, you should know that collateral requirements can change based on market conditions.

themihai 6y ago

The stocks(GME) are still limited/restricted btw.

loycombinate 6y ago

It’s possible with blockchain. Imagine if each stock had its own blockchain, made up of transactions of shares transferred from one to another, in exchange for a selected stablecoin. Every trade ever done is recorded and available to the public.

rajacombinator 6y ago

These clowns can’t even prevent their customers from using infinite leverage. (See WSB leverage hacks.) Their CEO doesn’t even understand clearinghouse rules. (He said so on TV the other day.) They should STFU and not share their “thoughts” on market structure.

timdaub 6y ago

Funny how the dinosaurs in this thread are arguing whether a < T+2 settlement is possible as fiat transactions are not atomic. In forth semester of computer science, I toyed around with Bitcoin (2014?). A client had asked me to build a crypto exchange and so I faced the problem of when to credit a user Bitcoin that they sent to exchange-generated addresses. Turns out the whitepaper specifically addressed this problem and by waiting 6 blocks, Bitcoin was designed to have such low probability of a chain reorganization that I was safely settled (finality in 60mins). That's how I built it, and it's also the way that 99% of centralized exchanges operate today.

executive 6y ago

It's Time for Vlad to Admit to Liquidity Issues

knorker 6y ago

They are just trying to get on the side of the mob, with this.

TopInvestor 6y ago

https://dailycaller.com/2021/02/02/robinhood-hedge-funds-citadel-order-flows-gamestop-stock-market/ https://dailycaller.com/2021/02/02/robinhood-hedge-funds-cit... Robinhood Made Nearly $700 Million By Selling User Data To Hedge Funds RobinHood is the Facebook of investing. There’s a reason it doesn’t charge you for trades. It sells information about your trades instead. It’s far more lucrative and explains why it’s willing to stop you from trading since you’re not really a customer-just a user/data point Robinhood has long branded itself as an accessible platform that provides free financial services for its users. Its mission statement includes a pledge to “democratize finance for all.” But the company makes money by selling its order flow — information about user transactions — to third party clients who actually enact trades with access to user data. Trades may be commission free for Robinhood users but they are actually sold to “market makers” that often used their position as the middle man to generate profit, according to the Financial Times. Most of these “market makers” are hedge funds or other institutional investors that financially benefit from more trade and market volatility. It’s big customer, by the way—the one it cares about more than you—that’s Citadel, which pays for Robinhood’s order flow. It also happens to be the biggest investor in the hedge fund that just got bankrupted by the Game Stop short squeeze on RobinHood. Robinhood was fined $65 million by the Securities and Exchange Commission (SEC) in December for “misleading statements and omissions” regarding its payment for order flow process. The SEC concluded that Robinhood “deprived” users of $34.1 million after providing their order flow to clients that prioritized higher revenue over providing the best price for customers. Robinhood’s largest clients for order flow are all hedge funds and other institutional investors according to an SEC filing from 2020. More than half of the company’s market orders were purchased by Citadel Securities — an affiliate of the hedge fund Citadel LLC. According to SEC filings from 2020, other institutional investors that purchased Robinhood’s order flow included hedge funds G1X Execution Services LLC and Two Sigma Securities LLC along with brokerage firms Wolverine Securities LLC and Virtu Americas LLC. Robinhood’s terms of service notes that certain content “is furnished by third parties” and specifies that neither the company nor third party provides are liable for damages. The company’s user agreement also requires investors using the app to “authorize or allow third parties” to gain access to services including market data and account information.

TopInvestor 6y ago

https://www.theamericanconservative.com/articles/our-oligarchs-crisis-of-confidence/ https://www.theamericanconservative.com/articles/our-oligarc... That’s one of the key takeaways here: these people are far too desperate to be as nefarious as we might think. The more outrageous aspects of the last few months—from Twitter censorship to post-election whiplash—may be best understood not as the first flashes of an ascendant tyranny, but as a flurry of idiotic moves by an elite who clearly have much less faith in their hold on power than we do. The wild saga of GameStop’s stock adventures over the past week or so is a perfect illustration of the point. When users of the subreddit r/wallstreetbets decided to invest in the video game chain, the price of the stock skyrocketed to peaks well over $400 (six months ago it was closer to $4). The move resulted in jaw-dropping profits for some of the amateur traders—and a whole lot of anger from the Wall Street establishment. Hedge funds and other big-dollar investors who had shorted the stock have lost over $5 billion altogether from the episode. So what did our robust market system do? Simple: citing market volatility, Robinhood and other day-trading services just restricted transactions on GameStop and other WallStreetBets picks. The big funds, meanwhile, were free to continue trading as normal. Besides giving the big guys a chance to get their ducks in a row, the freeze caused the stock to crash on Thursday morning, costing many amateur investors a pretty penny. It’s corrupt and immoral, and I’d be mad as hell if I’d been smart enough to get in on the GameStop craze. But it’s not the kind of thing that confident oligarchs do. It suggests the same fear that’s motivated so many decisions by people in power these past few months. Not to mention it may spark a backlash that will be well worth watching—and that may yet change our course in surprising ways. I’m as wary of the Wall Street-Silicon Valley-Washington axis as anyone. But it’s hard to be too afraid of any regime that can be thrown into such a devastating panic by a horde of Redditors buying GameStop stock from laptops in their mothers’ basements—or, for that matter, by a virus, or an election, or the host of The Apprentice.