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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 nothin
by 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 agoWhich 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 agoActually if RH didn't wire over the funds, they would be dissolved due to illiquidity.
- ABeeSea 6y agoI 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 agoIf 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 agoThey never went over the threshold because they turned off buying for the most volatile stocks.
- ZephyrBlu 6y agoSorry, 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 agoI 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 agoIt _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 agoDo you agree, then, that RH should be punished, if not dismembered as an entity, for incompetence leading to billions in stock losses?