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It's interesting watching /r/wallstreetbets oscillate between "We did nothing wrong!" to "Well okay, some people were doing some things that were wrong, but hop

It's interesting watching /r/wallstreetbets oscillate between "We did nothing wrong!" to "Well okay, some people were doing some things that were wrong, but hopefully no one will notice." https://www.reddit.com/r/wallstreetbets/comments/lj8djx/day_1_of_gamestop_hearing_house_committee_on/gnbatfl/?context=2 https://www.reddit.com/r/wallstreetbets/comments/lj8djx/day_... (I don't personally believe that anyone did anything that should be prosecuted here, but what I believe is irrelevant to courts.) There is one thing that (in my un-humble, ignorant opinion) should be prosecuted: according to https://www.youtube.com/watch?v=4RS4JIEVyXM&ab_channel=Benzinga https://www.youtube.com/watch?v=4RS4JIEVyXM&ab_channel=Benzi... the reason that trades were suspended is that the clearinghouse changed their requirements from 3% to 100% for GameStop specifically. And that clearinghouse settles 95% of all trades on Wall Street, so they effectively have a monopoly. Therefore that's why all the exchanges had to suspend GME training; no one had 100% collateral to cover GME for 3 days. Everything else -- Gill getting rich, WSB posts, Citadel's bailout of Melvin, etc -- is just a distraction. I hope one day they bring that clearinghouse to heel, since it was seriously uncool for them to change the rules of the game with the justification of "we said so."

pjc50 6y ago
The collateral requirement was imposed because of the incredibly high chance of the stock simply collapsing again. Trading halts in response to massive movements aren't unusual either.
- stingraycharles 6y ago
  Was a change in collateral requirement something that was known / codified in some agreement, or was it an ad-hoc decision?
  - MattGaiser 6y ago
    > How a clearinghouse judges these risks, and therefore when it makes demands for more upfront funds, is typically formulaic. Margins can be based on equations such as value-at-risk. Exactly how the formula works, and who is responsible for losses in what order, are important elements. In the case of National Securities Clearing Corp., losses would be covered by the defaulting member’s funds before the clearinghouse’s own funds or other members’ funds would be used. https://www.wsj.com/articles/how-clearing-demands-grounded-the-wallstreetbets-stocks-for-a-day-11611966092 https://www.wsj.com/articles/how-clearing-demands-grounded-t... WSJ says that it is formulaic.
    - bsanr2 6y ago
      Let's take a look at the formula.
    - ric2b 6y ago
      No, they say it "is typically formulaic". It's quite possible that this time it wasn't. I'd say it's very likely that it wasn't formulaic this time, since Robinhood's CEO said in an interview with CNBC that we was called at like 4AM, well after markets closed, to deal with the new requirements.
  - ummonk 6y ago
    It was an ad-hoc decision to go beyond the formulaic requirements.
- katbyte 6y ago
  I've only been sorta paying attention so i could be wrong but trades were not suspended or halted? only buying was prevented, and only for some brokerages?
  - csours 6y ago
    Trades at the exchange level were repeatedly halted over the course of two weeks or so of the most volatile trading. Trades by certain brokers or apps were also notably halted on a Thursday due to lack of liquidity.
    - ycombobreaker 6y ago
      Exchanges repeatedly halted for brief periods, based on predetermined rules. That part was nothing special, it's something like 5 minutes at a time, Buying to open new positions was blocked by some brokers in response to the the bump in collateral requirements they were required to fulfill. Some brokers were capable of blocking only margin account trading, but RH sounds like they blocked all buyers (plus their target market is margin account holders) DTCC is basically interested in ensuring that trade settlement occurs. They eliminate a lot of counterparty risk, but the flipside to that is that they clearly have discretion that surprises brokers.
  - freeone3000 6y ago
    It's the collateral increase that caused Robinhood and other no-fee brokerages to halt trading. Brokerages which had the ability to charge for trades simply required more cash on hand and charged slightly more for the trade.
  - jimminy 6y ago
    > Only buying was prevented, and only for some brokerages? The first part of that has been a common bit of misinformation. Opening new positions (either by attempting to buy shares of the stock, or entering into a new short position) is what was prevented. Closing positions (selling for owners of shares, or in the case of short obligations buying shares) was still allowed as closing reduces credit risk for the broker. The brokerages that did restrict, were smaller firms and did so to maintain liquidity for all assets, instead of allowing a vast amount of their capital to be consolidated largely into a few assets, due to the increased capital cost of clearing.
- avereveard 6y ago
  but they blocked stock purchases alongside options, which makes no sense if the justification was collaterals for options
  - w23j 6y ago
    Stock purchases are settled after 2 days. If the buyer goes broke before that, the seller would be left holding to bag. To mitigate this risk you need to post collateral.
    - avereveard 6y ago
      of course, but if you buy without margin the balance in your account should already be enough to cover the collateral.
      - gruez 6y ago
        But it's not the brokerage's money on the line, it's DTCC's. From the perspective of the DTCC, there's no difference between a retail brokerage buying $10M of GME and lehman brothers buying $10M of GME.
        ric2b 6y ago
        But if the brokerage already has your money they can use it to post collateral. And yet they banned everyone from buying. A lot of stuff doesn't add up here.
tptacek 6y ago
NSCC collateral rules are widely believed to follow directly from Dodd-Frank requirements. It's also hard to understand the supposed conspiracy you'd be prosecuting NSCC for. Is the idea here that NSCC was somehow corrupted by agents of hedge funds short on GME?
- sillysaurusx 6y ago
  Nah, no conspiracy. I just don't like that they can change their collateral requirement from 3% to 100% for specific stocks in one day, regardless of the reasons. To turn it around: should they have the authority to enforce a 33.3x collateral increase with no oversight simply because they feel it's necessary for the world to stop trading GME? This is the heart of what I hope will be regulated. BTW, playing whiskey slaps was fun. It was nice to see the crazy pentester world, even if I had wrong expectations going in. Hope you've been well!
  - icefrakker 6y ago
    You think people should be prosecuted for doing something you don't like? That's pretty brave - I think the same about things I dislike but would never state it publicly.
  - tptacek 6y ago
    I don't understand why you believe NSCC "felt it was necessary for the world to stop trading GME".
    - baq 6y ago
      this one's easy: the financial world experienced a 7-sigma event for which institutions were unprepared for and somebody figured that it is worth pulling the emergency brake lever. for a few days GME was almost perfectly reveresly correlated with SP500 - there was a lot of derisking happening all at once. this couldn't all have been retail moving from SP500 to GME.
- ummonk 6y ago
  You make it sound like the DTCC is some neutral 3rd party organization that isn't there to represent Wall Street.
csours 6y ago
They didn't change the rules of the game. The volatility and risk changed, thus the collateral requirements changed. Note: I am not a financial professional. I'm not sure if anyone from wsb should be prosecuted; but I will say that if another hedge fund had tried to do what wsb did, it would have been clearly and unambiguously illegal market manipulation. I do think it is quite likely there were some financial professionals posting on wsb that were breaching some laws or technical requirements. I have no evidence, but I would not be surprised.
- voiper1 6y ago
  If they required 100% collateral, why did that mean Robinhood stopped trades? Why couldn't they allow trades with 100% settled funds?
  - DavidSJ 6y ago
    I think the requirements were calculated at the brokerage level and not the individual customer level.
    - sillysaurusx 6y ago
      One level up, I think! Think of it like a pyramid: the clearinghouse sits at the top, the brokers are in the middle, and the rest of us dirty peasants sit at the bottom where we belong. The clearinghouse covers 95% of trades on Wall Street. So the clearinghouse issued a decree: "we are no longer able to support opening positions for GME, AMC, and KOSS." Since most brokers use this clearinghouse, that means almost all brokers were forced to prevent customers from buying GME. Everyone: pikachu face The brokers have no choice. https://youtu.be/4RS4JIEVyXM?t=96 https://youtu.be/4RS4JIEVyXM?t=96
      - rcxdude 6y ago
        Not quite right. There's the DTC (which carries out 95% of the trades), then there's clearing houses (sometimes a seperate entity, sometimes part of the broker: the larger ones all do their own clearing. e.g. Robinhood has their own clearing house), then there's the brokers, then the traders. The DTC said 'we need 100% collateral on these trades' (probably because they viewed there being a significant risk that someone, somewhere, would not be able to pay up for the trades they're making in a big way), and then APEX clearing (which is the clearing house used by a lot of smaller brokers but not 95% of the market) said 'we can't support opening new positions' because their liquidity would be sucked up by the requirement, blocking most of the smaller brokers. Robinhood did similar for similar reasons independently of APEX, but some other brokers not using APEX could still trade (either because they had more cash on hand or because their customers weren't buying as much of affected stocks).
defen 6y ago
The "alleged fraud" described at the end of that post is not fraud at all. That poster either doesn't actually understand options or is misremembering the post in question.
qaq 6y ago
"Therefore that's why all the exchanges had to suspend GME training" thats not accurate very few did. it's just that those few had oversized exposure on GME. They were also not part of some huge entity that could post extra money without even noticing like say Etrade (Morgan Stanley) etc.
molticrystal 6y ago
>Gill getting rich Did Gill sell? I thought he didn't convert his options yet and was still holding.
- wungsten 6y ago
  He continued to post daily updates of his held options until I believe 5 February, but I'm not sure what he did after that. I'm not sure if anyone but him knows, since that was around the time he was summoned by this committee. As of that last update he was still holding most of his options, but it is believed that he had converted at least some of them and profited more than $10 million. I don't have a better source than random Reddit comments, though.
gifnamething 6y ago
Oscillating? It's multiple people!
TheAlchemist 6y ago
“Therefore that's why all the exchanges had to suspend GME training” As far as I know, no exchange suspended trading in GME. It’s only some brokerage, due to collateral requirements and risks involved, that imposed limits on their clients. People should educate themselves about investing and trading before starting. I blame Robinhood for this circus - it’s pure gamification - I guess 90% of guys trading on it don’t understand what they doing, let alone what’s really happening when they hit this “buy” button. This is the point that should be investigated - do we really want people to be able to loose all their money in a matter of days and sometimes hours, trading options with leverage ?
- youeseh 6y ago
  Two types of limiting happened: Some brokerages put a complete stop on trading the share - no buying or selling. Fair enough. Others (this includes Robinhood, which I believe had the largest number of GME shareholders) stopped allowing purchases but continued to allow selling. One of their excuses is that they didn't want to take people's ability to exit their positions. This of course, played into the hands of anyone trying to cover their short, as it artificially increased the number of sellers compared to buyers. Finally, Robinhood allegedly closed out positions of people who'd purchased GME "on margin" - the thing is, if you sell a share in company A, and buy a share in company B on the same day, you might be buying shares in company B on margin, because it takes two days to settle company A's share sale. So, even though you may think you bought shares of company B fair and square, RH could still have closed your margin position.
vinniejames 6y ago
We don't need a clearing house at all. A simple blockchain fixes this and provides 100% of the settlement service that this company provides.
- SV_BubbleTime 6y ago
  Replace “blockchain” with “mathy database”, then stop suggesting a database will fix non-database problems.
ffggvv 6y ago
there is only one core clearinghouse, the DTCC and they aren’t going to be brought to heel. they’re the ones who raised the leverage requirements
oa335 6y ago
The clearinghouse requiring more margin should definitely be investigated, but it’s not unreasonable. Robinhood offers margin accounts, and may have lent money to all the traders by GME at 300-400 dollars, over 10 times what it was trading at previously. It was completely plausible that Robinhood could have gone bankrupt, which means the clearing firm would have been on the hook for all of that money. In my opinion, what needs to be investigated more is the “payment for order flow” business.
joshspankit 6y ago
> It's interesting watching /r/wallstreetbets oscillate between "We did nothing wrong!" to "Well okay, some people were doing some things that were wrong, but hopefully no one will notice." I feel like it’s mischaracterization to say that “/r/wallstreetbets” is either a single entity, or that the current group is at all connected to the “pre-GME” group. They had 1.7M users in Dec 2020, and are now over 9M. As well, there are undoubtedly bots, shills, and actors with their own agendas that were drawn as a direct result of the publicity.

pjc50 6y ago

The collateral requirement was imposed because of the incredibly high chance of the stock simply collapsing again. Trading halts in response to massive movements aren't unusual either.

stingraycharles 6y ago
Was a change in collateral requirement something that was known / codified in some agreement, or was it an ad-hoc decision?
- MattGaiser 6y ago
  > How a clearinghouse judges these risks, and therefore when it makes demands for more upfront funds, is typically formulaic. Margins can be based on equations such as value-at-risk. Exactly how the formula works, and who is responsible for losses in what order, are important elements. In the case of National Securities Clearing Corp., losses would be covered by the defaulting member’s funds before the clearinghouse’s own funds or other members’ funds would be used. https://www.wsj.com/articles/how-clearing-demands-grounded-the-wallstreetbets-stocks-for-a-day-11611966092 https://www.wsj.com/articles/how-clearing-demands-grounded-t... WSJ says that it is formulaic.
  - bsanr2 6y ago
    Let's take a look at the formula.
  - ric2b 6y ago
    No, they say it "is typically formulaic". It's quite possible that this time it wasn't. I'd say it's very likely that it wasn't formulaic this time, since Robinhood's CEO said in an interview with CNBC that we was called at like 4AM, well after markets closed, to deal with the new requirements.
- ummonk 6y ago
  It was an ad-hoc decision to go beyond the formulaic requirements.
katbyte 6y ago
I've only been sorta paying attention so i could be wrong but trades were not suspended or halted? only buying was prevented, and only for some brokerages?
- csours 6y ago
  Trades at the exchange level were repeatedly halted over the course of two weeks or so of the most volatile trading. Trades by certain brokers or apps were also notably halted on a Thursday due to lack of liquidity.
  - ycombobreaker 6y ago
    Exchanges repeatedly halted for brief periods, based on predetermined rules. That part was nothing special, it's something like 5 minutes at a time, Buying to open new positions was blocked by some brokers in response to the the bump in collateral requirements they were required to fulfill. Some brokers were capable of blocking only margin account trading, but RH sounds like they blocked all buyers (plus their target market is margin account holders) DTCC is basically interested in ensuring that trade settlement occurs. They eliminate a lot of counterparty risk, but the flipside to that is that they clearly have discretion that surprises brokers.
- freeone3000 6y ago
  It's the collateral increase that caused Robinhood and other no-fee brokerages to halt trading. Brokerages which had the ability to charge for trades simply required more cash on hand and charged slightly more for the trade.
- jimminy 6y ago
  > Only buying was prevented, and only for some brokerages? The first part of that has been a common bit of misinformation. Opening new positions (either by attempting to buy shares of the stock, or entering into a new short position) is what was prevented. Closing positions (selling for owners of shares, or in the case of short obligations buying shares) was still allowed as closing reduces credit risk for the broker. The brokerages that did restrict, were smaller firms and did so to maintain liquidity for all assets, instead of allowing a vast amount of their capital to be consolidated largely into a few assets, due to the increased capital cost of clearing.
avereveard 6y ago
but they blocked stock purchases alongside options, which makes no sense if the justification was collaterals for options
- w23j 6y ago
  Stock purchases are settled after 2 days. If the buyer goes broke before that, the seller would be left holding to bag. To mitigate this risk you need to post collateral.
  - avereveard 6y ago
    of course, but if you buy without margin the balance in your account should already be enough to cover the collateral.
    - gruez 6y ago
      But it's not the brokerage's money on the line, it's DTCC's. From the perspective of the DTCC, there's no difference between a retail brokerage buying $10M of GME and lehman brothers buying $10M of GME.
      - ric2b 6y ago
        But if the brokerage already has your money they can use it to post collateral. And yet they banned everyone from buying. A lot of stuff doesn't add up here.

tptacek 6y ago

NSCC collateral rules are widely believed to follow directly from Dodd-Frank requirements. It's also hard to understand the supposed conspiracy you'd be prosecuting NSCC for. Is the idea here that NSCC was somehow corrupted by agents of hedge funds short on GME?

sillysaurusx 6y ago
Nah, no conspiracy. I just don't like that they can change their collateral requirement from 3% to 100% for specific stocks in one day, regardless of the reasons. To turn it around: should they have the authority to enforce a 33.3x collateral increase with no oversight simply because they feel it's necessary for the world to stop trading GME? This is the heart of what I hope will be regulated. BTW, playing whiskey slaps was fun. It was nice to see the crazy pentester world, even if I had wrong expectations going in. Hope you've been well!
- icefrakker 6y ago
  You think people should be prosecuted for doing something you don't like? That's pretty brave - I think the same about things I dislike but would never state it publicly.
- tptacek 6y ago
  I don't understand why you believe NSCC "felt it was necessary for the world to stop trading GME".
  - baq 6y ago
    this one's easy: the financial world experienced a 7-sigma event for which institutions were unprepared for and somebody figured that it is worth pulling the emergency brake lever. for a few days GME was almost perfectly reveresly correlated with SP500 - there was a lot of derisking happening all at once. this couldn't all have been retail moving from SP500 to GME.
ummonk 6y ago
You make it sound like the DTCC is some neutral 3rd party organization that isn't there to represent Wall Street.

csours 6y ago

They didn't change the rules of the game. The volatility and risk changed, thus the collateral requirements changed. Note: I am not a financial professional. I'm not sure if anyone from wsb should be prosecuted; but I will say that if another hedge fund had tried to do what wsb did, it would have been clearly and unambiguously illegal market manipulation. I do think it is quite likely there were some financial professionals posting on wsb that were breaching some laws or technical requirements. I have no evidence, but I would not be surprised.

voiper1 6y ago
If they required 100% collateral, why did that mean Robinhood stopped trades? Why couldn't they allow trades with 100% settled funds?
- DavidSJ 6y ago
  I think the requirements were calculated at the brokerage level and not the individual customer level.
  - sillysaurusx 6y ago
    One level up, I think! Think of it like a pyramid: the clearinghouse sits at the top, the brokers are in the middle, and the rest of us dirty peasants sit at the bottom where we belong. The clearinghouse covers 95% of trades on Wall Street. So the clearinghouse issued a decree: "we are no longer able to support opening positions for GME, AMC, and KOSS." Since most brokers use this clearinghouse, that means almost all brokers were forced to prevent customers from buying GME. Everyone: pikachu face The brokers have no choice. https://youtu.be/4RS4JIEVyXM?t=96 https://youtu.be/4RS4JIEVyXM?t=96
    - rcxdude 6y ago
      Not quite right. There's the DTC (which carries out 95% of the trades), then there's clearing houses (sometimes a seperate entity, sometimes part of the broker: the larger ones all do their own clearing. e.g. Robinhood has their own clearing house), then there's the brokers, then the traders. The DTC said 'we need 100% collateral on these trades' (probably because they viewed there being a significant risk that someone, somewhere, would not be able to pay up for the trades they're making in a big way), and then APEX clearing (which is the clearing house used by a lot of smaller brokers but not 95% of the market) said 'we can't support opening new positions' because their liquidity would be sucked up by the requirement, blocking most of the smaller brokers. Robinhood did similar for similar reasons independently of APEX, but some other brokers not using APEX could still trade (either because they had more cash on hand or because their customers weren't buying as much of affected stocks).

defen 6y ago

The "alleged fraud" described at the end of that post is not fraud at all. That poster either doesn't actually understand options or is misremembering the post in question.

qaq 6y ago

"Therefore that's why all the exchanges had to suspend GME training" thats not accurate very few did. it's just that those few had oversized exposure on GME. They were also not part of some huge entity that could post extra money without even noticing like say Etrade (Morgan Stanley) etc.

molticrystal 6y ago

>Gill getting rich Did Gill sell? I thought he didn't convert his options yet and was still holding.

wungsten 6y ago
He continued to post daily updates of his held options until I believe 5 February, but I'm not sure what he did after that. I'm not sure if anyone but him knows, since that was around the time he was summoned by this committee. As of that last update he was still holding most of his options, but it is believed that he had converted at least some of them and profited more than $10 million. I don't have a better source than random Reddit comments, though.

gifnamething 6y ago

Oscillating? It's multiple people!

TheAlchemist 6y ago

“Therefore that's why all the exchanges had to suspend GME training” As far as I know, no exchange suspended trading in GME. It’s only some brokerage, due to collateral requirements and risks involved, that imposed limits on their clients. People should educate themselves about investing and trading before starting. I blame Robinhood for this circus - it’s pure gamification - I guess 90% of guys trading on it don’t understand what they doing, let alone what’s really happening when they hit this “buy” button. This is the point that should be investigated - do we really want people to be able to loose all their money in a matter of days and sometimes hours, trading options with leverage ?

youeseh 6y ago
Two types of limiting happened: Some brokerages put a complete stop on trading the share - no buying or selling. Fair enough. Others (this includes Robinhood, which I believe had the largest number of GME shareholders) stopped allowing purchases but continued to allow selling. One of their excuses is that they didn't want to take people's ability to exit their positions. This of course, played into the hands of anyone trying to cover their short, as it artificially increased the number of sellers compared to buyers. Finally, Robinhood allegedly closed out positions of people who'd purchased GME "on margin" - the thing is, if you sell a share in company A, and buy a share in company B on the same day, you might be buying shares in company B on margin, because it takes two days to settle company A's share sale. So, even though you may think you bought shares of company B fair and square, RH could still have closed your margin position.

vinniejames 6y ago

We don't need a clearing house at all. A simple blockchain fixes this and provides 100% of the settlement service that this company provides.

SV_BubbleTime 6y ago
Replace “blockchain” with “mathy database”, then stop suggesting a database will fix non-database problems.

ffggvv 6y ago

there is only one core clearinghouse, the DTCC and they aren’t going to be brought to heel. they’re the ones who raised the leverage requirements

oa335 6y ago

The clearinghouse requiring more margin should definitely be investigated, but it’s not unreasonable. Robinhood offers margin accounts, and may have lent money to all the traders by GME at 300-400 dollars, over 10 times what it was trading at previously. It was completely plausible that Robinhood could have gone bankrupt, which means the clearing firm would have been on the hook for all of that money. In my opinion, what needs to be investigated more is the “payment for order flow” business.

joshspankit 6y ago

> It's interesting watching /r/wallstreetbets oscillate between "We did nothing wrong!" to "Well okay, some people were doing some things that were wrong, but hopefully no one will notice." I feel like it’s mischaracterization to say that “/r/wallstreetbets” is either a single entity, or that the current group is at all connected to the “pre-GME” group. They had 1.7M users in Dec 2020, and are now over 9M. As well, there are undoubtedly bots, shills, and actors with their own agendas that were drawn as a direct result of the publicity.