> The massive FTD rate is a solid indicator of clearinghouse risk. And it wasn’t Robinhood’s FTD, but they were on the other end of the trade. Fair point. But

> The massive FTD rate is a solid indicator of clearinghouse risk. And it wasn’t Robinhood’s FTD, but they were on the other end of the trade. Fair point. But ultimately the solution would be to impose a locate requirement on market-makers, then buy all eligible FTD positions at market to cover them and send the bill to the respective short-selling clearing members. In general, it doesn't make sense for market-makers to sell a threshold security short into demand, even if there's borrow available, because that borrow will be needed to chip away at the FTD queue. Also, what rate do firms that fail to deliver pay to be short to the clearinghouse? It ought to be in line with the borrow rate in the securities lending market. > The risk of a hedge fund failing was a multi-billion dollar contagion about to the hit the clearinghouse. Melvin doesn't directly face the clearinghouse. I'm not sure where Melvin does its PB but I doubt JPM, MS, or GS would go under from failing to quickly cover a single short position. (But it would be very interesting to hear the earnings Q&A after a quarterly loss due to a reddit squeeze.)