3 ms·

You're confusing two different things. One is the payment capability of the customer to pay RH when the purchase is settled (T+2). The other is the relationsh

by rswail 6y ago

You're confusing two different things. One is the payment capability of the customer to pay RH when the purchase is settled (T+2). The other is the relationship and payment capability of RH to the clearing house (DTCC) for its orders that it has placed with other brokers. RH is required, as a broker, to provide its own collateral to the clearing house so that the clearing house can guarantee to other brokers that all their trades will be settled at T+2. RH is not allowed by law to use their customers' money as collateral to DTCC. If RH goes broke, then DTCC does the following: a) takes all their collateral and uses it to make the other brokers good on their trades (which makes the counterparties good on the trade) b) takes the customers money and uses it to complete the trades (which makes the customers good on their trade). RH is left to be picked apart. That's the purpose of the clearinghouse.

amluto 6y ago
> RH is not allowed by law to use their customers' money as collateral to DTCC. If RH goes broke, then DTCC does the following: I still can’t find an authoritative citation for this, and it seems seems like poor design to me. Suppose Robinhood has one customer. That customer opens a cash trading account, deposits $1bn into it, waits for the deposit to clear and waits an extra week for good measure, and then uses all $1bn to buy an absurdly volatile stock. Now, between the execution of the trade and settlement, Robinhood is apparently holding $1bn (in a segregated account?), and Robinhood needs to post some largish fraction of $1bn with their clearer to offset the risk that Robinhood fails to pay the $1bn at settlement. To me, this seems like un unreasonable requirement for Robinhood. If their actually go bust before settlement, they owe DTCC, etc $1bn, the customer has $1bn deposited (in the same segregated account), and the customer is owed some number of shares of the stock. All the money is there! So why can’t Robinhood satisfy its clearing fund requirement by putting the appropriate fraction (or even all) of the customer’s $1bn into segregated account with its clearer? After all, the mere fact that Robinhood has a whale for a client does not mean they are any more likely to go bust, except for the fact that “bust” seems to include this odd case where Robinhood can’t independently secure its customer’s trade.

by rswail 6y ago

amluto 6y ago

> RH is not allowed by law to use their customers' money as collateral to DTCC. If RH goes broke, then DTCC does the following: I still can’t find an authoritative citation for this, and it seems seems like poor design to me. Suppose Robinhood has one customer. That customer opens a cash trading account, deposits $1bn into it, waits for the deposit to clear and waits an extra week for good measure, and then uses all $1bn to buy an absurdly volatile stock. Now, between the execution of the trade and settlement, Robinhood is apparently holding $1bn (in a segregated account?), and Robinhood needs to post some largish fraction of $1bn with their clearer to offset the risk that Robinhood fails to pay the $1bn at settlement. To me, this seems like un unreasonable requirement for Robinhood. If their actually go bust before settlement, they owe DTCC, etc $1bn, the customer has $1bn deposited (in the same segregated account), and the customer is owed some number of shares of the stock. All the money is there! So why can’t Robinhood satisfy its clearing fund requirement by putting the appropriate fraction (or even all) of the customer’s $1bn into segregated account with its clearer? After all, the mere fact that Robinhood has a whale for a client does not mean they are any more likely to go bust, except for the fact that “bust” seems to include this odd case where Robinhood can’t independently secure its customer’s trade.