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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 t

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.
- swampthing 6y ago
  If you own a car, you should know that you could be in a catastrophic accident at any time based on the behavior of others. If you are driving lawfully and someone t-bones you out of nowhere and you die, did you make a mistake in your driving?
  - ashtonkem 6y ago
    A better analogy is that you should know that driving is dangerous and therefore keep insurance. But again, dealing with changing margin requirements is a core part of the job when you run a brokerage, especially for margin accounts. They didn’t do their jobs right, and they want to blame someone else.
    - swampthing 6y ago
      It sounds like you think that what happened is related to margin accounts. I don't think that is accurate (see the blog post this thread is on). Robinhood does keep the equivalent of auto insurance, by the way of the deposits they make with the DTC (and probably other measures). So the analogy is that you keep insurance, and you suffer some catastrophic accident due to some crazy driver coming out of nowhere. Are you at fault? But I do agree that they didn't do their job, with respect to PR / communications. And I agree that this blog post seems designed to mitigate the effects of that.
      - ashtonkem 6y ago
        I'm not sure why you're acting like this is just something that came out of the blue and hit RH without any possible warning. They purposefully courted new, low information traders and gamified trading. Even before GME you could find complaints and warnings about how Robinhood was gamifying trading. And now they're surprised that this results in new trader behavior? Come on. To complete the analogy, this is like deciding to go out and do unnecessary driving after midnight on new years eve. Maybe they're not legally at fault if they get hit by a drunk driver, but they sure as hell put themselves at a higher risk of this happening.
        swampthing 6y ago
        Because that is basically what happened. There is a reason why WSB and GME have been in the news. It's because what happened is surprising. Sure, in hindsight, you can identify causes for the phenomenon. But if you rewind back to January 1, I don't think most of us would have predicted this at any level of certainty beyond a theoretical possibility. I agree with you that Robinhood did put itself at higher risk of this happening, but I don't think that means they did something wrong. Just like I don't think most people would blame the innocent driver in your hypothetical. Who, if we were to make the analogy more applicable, might be an Uber driver trying to make some extra cash.
        ashtonkem 6y ago
        For the record, back when I worked in finance I heard plenty of conversations about margin requirements going up, often forcing desks to liquidate positions that they otherwise wanted to keep. The idea that margin requirements might change is something finance has had to deal with for a very long time, and RH should have been prepared for the possibility. Better still, they should have had the controls in place to cool down the GME trade once it started to spiral, such as reducing the amount of leverage they let their customers have.
        swampthing 6y ago
        I don't know that it would be accurate to assume that Robinhood was not prepared for the possibility of their deposit requirements changing. I think it's more likely that they were unprepared for the magnitude of changes in a lot of their underlying assumptions. There were 600k downloads of their app on Friday alone, which is roughly 4x the previous daily high water mark, which itself was an anomaly. On top of that, most of those people are signing up to purchase shares in just a very small number of companies. I think there are very, very few businesses that are prepared for a black swan event of a magnitude that Robinhood experienced. I am just responding to blaming them for not having enough cash on hand to meet the DTC's new deposit requirement, which did come out of the blue. You can say that Robinhood could have anticipated that at some point it may need to back up 100% of the activity of their customers with deposits, given that it is a possibility that is laid out in the DTC rules. But I don't think any brokerage is well-capitalized enough to handle that for every scenario. But I understand that Robinhood has had other problems (reliability, customer support, etc.), and has also gamified stock trading in a way that is probably harmful. I am sympathetic to those criticisms.
ineedasername 6y ago
Collateral requirements are quite a bit more fluid than a mortgage and Robinhood was not asked, AFAIK, to give 10x collateral so the comparison doesn't fit. Even still: Yes-- good budgeting with savings should allow you to face an obstacle like a 10x mortgage payment. I'm not particularly frugal but I could, at a pinch, gather that much money. Assuming you're putting aside the recommended 6 months living expenses for an emergency, the non-mortgage part of that savings should cover the other 4 months. RH is in a business that requires the deepest pockets of literally any industry on the planet. If they don't have that capital, they don't get to play, and that's their fault.
CaptainZapp 6y ago
The bread and butter of any financial company is risk management. That includes foreseeing a pandemic as well as modelling the possibility of sudden stock volatility at 3am. If you don't envision such a clearly possible scenario as a bank , or a broker (your mortgage payment suddenly going to be x10 is not such a clearly possible scenario) you severely fucked up in your chosen field of business, period.

ashtonkem 6y ago

If you run a brokerage, you should know that collateral requirements can change based on market conditions.

swampthing 6y ago
If you own a car, you should know that you could be in a catastrophic accident at any time based on the behavior of others. If you are driving lawfully and someone t-bones you out of nowhere and you die, did you make a mistake in your driving?
- ashtonkem 6y ago
  A better analogy is that you should know that driving is dangerous and therefore keep insurance. But again, dealing with changing margin requirements is a core part of the job when you run a brokerage, especially for margin accounts. They didn’t do their jobs right, and they want to blame someone else.
  - swampthing 6y ago
    It sounds like you think that what happened is related to margin accounts. I don't think that is accurate (see the blog post this thread is on). Robinhood does keep the equivalent of auto insurance, by the way of the deposits they make with the DTC (and probably other measures). So the analogy is that you keep insurance, and you suffer some catastrophic accident due to some crazy driver coming out of nowhere. Are you at fault? But I do agree that they didn't do their job, with respect to PR / communications. And I agree that this blog post seems designed to mitigate the effects of that.
    - ashtonkem 6y ago
      I'm not sure why you're acting like this is just something that came out of the blue and hit RH without any possible warning. They purposefully courted new, low information traders and gamified trading. Even before GME you could find complaints and warnings about how Robinhood was gamifying trading. And now they're surprised that this results in new trader behavior? Come on. To complete the analogy, this is like deciding to go out and do unnecessary driving after midnight on new years eve. Maybe they're not legally at fault if they get hit by a drunk driver, but they sure as hell put themselves at a higher risk of this happening.
      - swampthing 6y ago
        Because that is basically what happened. There is a reason why WSB and GME have been in the news. It's because what happened is surprising. Sure, in hindsight, you can identify causes for the phenomenon. But if you rewind back to January 1, I don't think most of us would have predicted this at any level of certainty beyond a theoretical possibility. I agree with you that Robinhood did put itself at higher risk of this happening, but I don't think that means they did something wrong. Just like I don't think most people would blame the innocent driver in your hypothetical. Who, if we were to make the analogy more applicable, might be an Uber driver trying to make some extra cash.
        ashtonkem 6y ago
        For the record, back when I worked in finance I heard plenty of conversations about margin requirements going up, often forcing desks to liquidate positions that they otherwise wanted to keep. The idea that margin requirements might change is something finance has had to deal with for a very long time, and RH should have been prepared for the possibility. Better still, they should have had the controls in place to cool down the GME trade once it started to spiral, such as reducing the amount of leverage they let their customers have.
        swampthing 6y ago
        I don't know that it would be accurate to assume that Robinhood was not prepared for the possibility of their deposit requirements changing. I think it's more likely that they were unprepared for the magnitude of changes in a lot of their underlying assumptions. There were 600k downloads of their app on Friday alone, which is roughly 4x the previous daily high water mark, which itself was an anomaly. On top of that, most of those people are signing up to purchase shares in just a very small number of companies. I think there are very, very few businesses that are prepared for a black swan event of a magnitude that Robinhood experienced. I am just responding to blaming them for not having enough cash on hand to meet the DTC's new deposit requirement, which did come out of the blue. You can say that Robinhood could have anticipated that at some point it may need to back up 100% of the activity of their customers with deposits, given that it is a possibility that is laid out in the DTC rules. But I don't think any brokerage is well-capitalized enough to handle that for every scenario. But I understand that Robinhood has had other problems (reliability, customer support, etc.), and has also gamified stock trading in a way that is probably harmful. I am sympathetic to those criticisms.

ineedasername 6y ago

Collateral requirements are quite a bit more fluid than a mortgage and Robinhood was not asked, AFAIK, to give 10x collateral so the comparison doesn't fit. Even still: Yes-- good budgeting with savings should allow you to face an obstacle like a 10x mortgage payment. I'm not particularly frugal but I could, at a pinch, gather that much money. Assuming you're putting aside the recommended 6 months living expenses for an emergency, the non-mortgage part of that savings should cover the other 4 months. RH is in a business that requires the deepest pockets of literally any industry on the planet. If they don't have that capital, they don't get to play, and that's their fault.

CaptainZapp 6y ago

The bread and butter of any financial company is risk management. That includes foreseeing a pandemic as well as modelling the possibility of sudden stock volatility at 3am. If you don't envision such a clearly possible scenario as a bank , or a broker (your mortgage payment suddenly going to be x10 is not such a clearly possible scenario) you severely fucked up in your chosen field of business, period.