4 ms·

For the record, why did Robinhood stop the trading? I know there's been an uproar, but due to the volume of articles it's been difficult to get a clearheaded id

by dmos62 6y ago

For the record, why did Robinhood stop the trading? I know there's been an uproar, but due to the volume of articles it's been difficult to get a clearheaded idea of why Robinhood actually did it.

SalimoS 6y ago
There is an episode on NPR https://www.npr.org/2021/02/02/963466346/robinhoods-very-bad-day https://www.npr.org/2021/02/02/963466346/robinhoods-very-bad...
trestenhortz 6y ago
They’ve removed the original blog post that gave their rationale. If anyone can find it I’d like to read it again. The original reason was some bullshit about protecting investors from volatility.
a254613e 6y ago
Liquidity issue. Or rather, extremely close to it. The CEO said he "doesn't want to use the L word" to describe it. Basically they had to cover/deposit the purchase trades themselves, before they ran out of money to do so (liquidity issue) they shut down purchasing - then went on record on CNBC etc claiming that it's not a liquidity issue. Interview with the CEO https://youtu.be/LqoJApzkaPU?t=404 https://youtu.be/LqoJApzkaPU?t=404 where he confirms that's the case
- deleted 6y ago
  [deleted]
dmos62 6y ago
To answer my own question: quoting https://blog.bitmex.com/walkaway/ https://blog.bitmex.com/walkaway/ > "Brokers must post margin with the Depository Trust & Clearing Corporation and National Securities Clearing Corporation at the end of each day to ensure enough funds are reserved to cover any trading losses." > The “meme” stonks’ volatility skyrocketed, which meant that the clearing organisations could ask for more collateral from brokers on the grounds of needing to protect themselves from additional potential risk when settling the brokers’ trades. It takes two business days to settle stocks in the so-called digital age… > Robinhood in particular was told to come up with $4 billion, or they would not be able to facilitate any trading the following day. RH, apparently not having that much cash on-hand, said, “how about we stop trading or severely curtail trading in the stocks that are causing PAIN to various masters of the universe?” The clearing houses said, “OK, in that case, you would only need to post $700 million.” RH agreed to that figure, rushed to raise more money from the Street and/or Silicon Valley, and then subsequently shut off trading on Jan 28th and into the weekend. (This is information gleaned from an interview the CEO of RH gave to Elon Musk on Clubhouse). So, it's the clearing houses that strongarmed shutting down the trading.
- trestenhortz 6y ago
  That’s not the reason robinhood gave at the time. Also, robinhood waited till the end of the day to lift its ban, despite other companies had followed robinhood lead lifting their bans hours earlier.
  - JumpCrisscross 6y ago
    > That’s not the reason robinhood gave at the time Hence, lawsuits.
    - fennecfoxen 6y ago
      Even if he knowingly, brazenly lied, and lied worse than this, that’s a weak basis for a lawsuit by itself. You’ll need to prove some damages from the lie.
  - gruez 6y ago
    >despite other companies had followed robinhood lead lifting their bans hours earlier. maybe because the other companies don't have a high concentration of wsb users?

by dmos62 6y ago

For the record, why did Robinhood stop the trading? I know there's been an uproar, but due to the volume of articles it's been difficult to get a clearheaded idea of why Robinhood actually did it.

SalimoS 6y ago

There is an episode on NPR https://www.npr.org/2021/02/02/963466346/robinhoods-very-bad-day https://www.npr.org/2021/02/02/963466346/robinhoods-very-bad...

trestenhortz 6y ago

They’ve removed the original blog post that gave their rationale. If anyone can find it I’d like to read it again. The original reason was some bullshit about protecting investors from volatility.

a254613e 6y ago

Liquidity issue. Or rather, extremely close to it. The CEO said he "doesn't want to use the L word" to describe it. Basically they had to cover/deposit the purchase trades themselves, before they ran out of money to do so (liquidity issue) they shut down purchasing - then went on record on CNBC etc claiming that it's not a liquidity issue. Interview with the CEO https://youtu.be/LqoJApzkaPU?t=404 https://youtu.be/LqoJApzkaPU?t=404 where he confirms that's the case

deleted 6y ago
[deleted]

dmos62 6y ago

To answer my own question: quoting https://blog.bitmex.com/walkaway/ https://blog.bitmex.com/walkaway/ > "Brokers must post margin with the Depository Trust & Clearing Corporation and National Securities Clearing Corporation at the end of each day to ensure enough funds are reserved to cover any trading losses." > The “meme” stonks’ volatility skyrocketed, which meant that the clearing organisations could ask for more collateral from brokers on the grounds of needing to protect themselves from additional potential risk when settling the brokers’ trades. It takes two business days to settle stocks in the so-called digital age… > Robinhood in particular was told to come up with $4 billion, or they would not be able to facilitate any trading the following day. RH, apparently not having that much cash on-hand, said, “how about we stop trading or severely curtail trading in the stocks that are causing PAIN to various masters of the universe?” The clearing houses said, “OK, in that case, you would only need to post $700 million.” RH agreed to that figure, rushed to raise more money from the Street and/or Silicon Valley, and then subsequently shut off trading on Jan 28th and into the weekend. (This is information gleaned from an interview the CEO of RH gave to Elon Musk on Clubhouse). So, it's the clearing houses that strongarmed shutting down the trading.

trestenhortz 6y ago
That’s not the reason robinhood gave at the time. Also, robinhood waited till the end of the day to lift its ban, despite other companies had followed robinhood lead lifting their bans hours earlier.
- JumpCrisscross 6y ago
  > That’s not the reason robinhood gave at the time Hence, lawsuits.
  - fennecfoxen 6y ago
    Even if he knowingly, brazenly lied, and lied worse than this, that’s a weak basis for a lawsuit by itself. You’ll need to prove some damages from the lie.
- gruez 6y ago
  >despite other companies had followed robinhood lead lifting their bans hours earlier. maybe because the other companies don't have a high concentration of wsb users?