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I'm pretty skeptical of the negative attention Robinhood is receiving. It seems like the entities who actually acted in bad faith, the ones who attempted illega

I'm pretty skeptical of the negative attention Robinhood is receiving. It seems like the entities who actually acted in bad faith, the ones who attempted illegal shorts, are trying to divert attention. Like someone else said, Robinhood is just the fall guy here.

omgJustTest 6y ago
Hard to hear. Robinhood has normalized pay for flow, a service that is literally shaving cash off each order in exchange for “free trading”. Pff can only generate net revenue by making traders pay more per trade than actual best execution, which Robinhood is suppose to be legally required to deliver. The SEC in the 90s and 2000s thought the practice amounted to middle manning traders and should be illegal. Basically: Robinhood gives stock purchases to a third party, who pays Robinhood for each transaction in “rebates”. If you have a free trading account other than fidelity, you are paying insane transaction fees that are hidden from you by the pff. It’s middle manning, and Robinhood is paid to enable it. Not a fall guy, just not all the guys that need to fall.
- croon 6y ago
  Isn't the not-so-secret secret that every other brokerage also sells flow [0], but still charges the end user? Making Robinhood just less bad than the rest. [0] https://piper2.bluematrix.com/sellside/EmailDocViewer?encrypt=6470f5cc-e225-497c-922d-e00e6188ed78&mime=pdf&co=Piper&id=FSG-ER@psc.com&source=mail https://piper2.bluematrix.com/sellside/EmailDocViewer?encryp...
- omgJustTest 6y ago
  On the topic of trading freezes and capital requirements: there are a lot of ppl who will loan a broker money. Intersect them with the number of ppl who will and can PFF and now you are talking about 1-10orgs and most of them are high frequency middle manning the orders coming in. If you are one of the 1-10 orgs who do this 1. You’re scum and 2. You are big enough to be on both sides of this definition of the conflict of interests What happens to RH rebates if they no longer have 1-10 of those PFF customers?
- astura 6y ago
  Isn't this something almost all brokerages do? https://efipm.medium.com/zero-commission-brokers-selling-order-flow-are-the-new-intermediaries-who-will-disrupt-them-5e79628b32f1 https://efipm.medium.com/zero-commission-brokers-selling-ord...
- mlrtime 6y ago
  When RH sells to a internalizer for payment (PFOF) it is always inside the NBBO (National Best Bid and Offer) which is always going to be a better price than what you would receive on a public exchange AND there are 0 commissions.
  - rcxdude 6y ago
    Exactly. It's not the user paying for it, it's whoever would have been on the other side of the trade without the pay-for-flow.
    - pests 6y ago
      Right, because that other side of the trade is purposefully trading against this bought flow thinking they can earn more opposed to competing with institutionalized investors.
bidirectional 6y ago
What illegal shorts? Short interest being above 100% of floatation can happen perfectly naturally without anything illegal being done.
- rob74 6y ago
  Yeah, about as "perfectly natural" as the stock market soaring while the economy is in crisis (i.e. logical, but completely perverted).
  - MperorM 6y ago
    why is shorting a company perverted? I would argue it's a great asset to society. Eg. those who shorted stock because they expected covid-19 to cause a market dip, sent a giant signal to the entire world that covid was going to be a big problem.
    - rob74 6y ago
      Nothing against shorting in principle, the OP and me were just referring to being able to "sell" more shares of a company than there are in existence...
      - MperorM 6y ago
        How is that perverted? Shorting a stock is fundamentally no different than other types of debt. Imagine an economy of 3 people, A, B and C. A has $5. B borrows $5 from A. C borrows $5 from B. A borrows $5 form C. The economy started with $5 and $0 debt, the economy ends with $5 and $15 debt. Despite the fact that the society's total debt is now 300% the size of its economy, it is no different than how it started. Debt isn't inherently bad. Debt is a tool that allows us to collaborate.
      - smogcutter 6y ago
        That’s not mysterious or suspicious at all, it’s just a consequence of being able to lend something fungible. Very similar to how bank lending affects the supply of money.
Railsify 6y ago
Were the shorts illegal? I keep seeing the accusation but I don't think it's possible to short sell a stock that you have not borrowed.
- ceejayoz 6y ago
  It's definitely possible. https://en.wikipedia.org/wiki/Naked_short_selling https://en.wikipedia.org/wiki/Naked_short_selling
  - Railsify 6y ago
    Possible but would require a licensed broker to break the law. It's like check kiting but with the aid of a broker the broker would have to credit your account shares that do not exist.
    - ceejayoz 6y ago
      > In May 2012, lawyers acting for Goldman accidentally released an unredacted document revealing compromising internal discussions regarding naked short selling. "Fuck the compliance area – procedures, schmecedures", Rolling Stone Magazine quoted Peter Melz, the former president of Merrill Lynch Professional Clearing Corp. as saying in the document.
      - user-the-name 6y ago
        > In May 2012
        ceejayoz 6y ago
        That's not long ago, and it's after the practice was banned. You think the banking industry has had an ethical epiphany and sudden love for regulations in the last decade?
        user-the-name 6y ago
pjc50 6y ago
> the ones who attempted illegal shorts [citation needed]; is this actually true or is this just part of the WSB sales pitch?
- BunsanSpace 6y ago
  Melvin capital and several other hedge funds engaged in naked short selling, and many backbone clearing houses enabled it via share counter fitting. (naked short selling is illegal) The deeper issue is the SEC not cracking down on the fail to delivers and naked short selling. I think Robinhood and other brokerages are the scape goats here. Their hands where tied when the companies that processed their orders refused to process trades for those stocks. The whole debacle has exposed a lot of corrupt, fraud and other nasties while showing the SEC is completely unwilling to do their job.
  - penagwin 6y ago
    Is there a source for this? I watched their testimony to congress and they said they aren't even able to place naked shorts/calls. You can still get a short interest above 100% without selling naked calls/shorts.
    - nrmitchi 6y ago
      This whole "illegal naked short sales" story recently is a conspiracy theory, not a valid theory, so you're not going to get a source. The main difference between a conspiracy theory and a valid theory is that a conspiracy theory is non-falsifiable; any evidence to the contrary is dismissed as "fake news" or "the deep state is hiding the evidence". In your example here of "they testified to Congress under penalty of perjury", the response will be "Ya, they lied, because they knew the whole system would back them. They faked all of the records that show that they didn't actually do it!". Now this isn't to say that a conspiracy theory can't be right in the end, but that still doesn't make it a valid theory.
      - fractionalhare 6y ago
ericmay 6y ago
My issue isn’t the shorts, it’s when the shorts (or others) start messing with the game board. You should be able to short a stock, no doubt about it. But you shouldn’t be able to coordinate “short attacks” or use other tactics. I wonder if it may be a good idea to remove computers from trading except for execution enacted by humans because of human research. Should Bloomberg terminals be legal? Should everyone effectively have the same hardware? I wonder how someone in Oklahoma can compete with a large bank. Should they be able to?
- gruez 6y ago
  >But you shouldn’t be able to coordinate “short attacks” or use other tactics. https://www.institutionalinvestor.com/article/b1qdq0y5b79rzb/Wallstreetbets-Conspiracy-Theorists-Claim-a-Short-Ladder-Attack-Brought-Down-GameStop-Short-Sellers-Have-No-Idea-What-They-re-Talking-About https://www.institutionalinvestor.com/article/b1qdq0y5b79rzb...
  - ericmay 6y ago
    I'm not saying they used that tactic - but that the use of such tactics shouldn't be allowed.
    - gruez 6y ago
      The point is that the tactic isn't viable in the first place. It's almost like saying that we should ban people from making perpetual motion machines.
      - ericmay 6y ago
        Sure, insert any other similar tactic in place of a short ladder and I'd be interested in the discussion of why or why not it should be allowed. I'm also interested in discussing whether or not ETFs should exist. I wonder at some point if you just kind of eliminate price discovery and prop up zombie companies.
        6y ago
fractionalhare 6y ago
Which firms attempted illegal short selling, and what is your specific evidence to support that they did?
- SkyBelow 6y ago
  Is this needed to make a claim? If I say that someone stole the Declaration of Independence, then I would only need to provide evidence it was stolen, not evidence that shows some particular person stole it. In this case, evidence of illegal shorts is what one would need to provide to back their claim, not evidence that a specific firm engaged in illegal shorts.
  - gruez 6y ago
    >In this case, evidence of illegal shorts is what one would need to provide to back their claim Okay, what's the evidence of illegal shorts?
    - Swenrekcah 6y ago
      Everything I (think I) know about this I have learned in the last few weeks so take this with a grain of salt, but I understand that GME shares have failed to deliver a lot which can be evidence of naked shorts which are supposedly illegal.
gitdown42 6y ago
Robinhood deserves negative attention, but not for restricting trades to closing-ony. That appears to not have been much of a choice. They do deserve a lot of negative attention for running a brokerage in a way that invited a lot of risk-ignorant retail traders to instantly trade into leveraged positions for which they should never have been qualified in the first place. Robinhood has the valuation it does because it brought leveraged day trading to the masses. As someone who worked at a brokerage and designed trading tools, leveraged day trading isn't for the masses.
- Mauricebranagh 6y ago
  And add these adverts plugging "factional" shares at naive first time investors to the list, tbh I think the SEC should encourage share splits once a share gets to Tesla levels. Your first investments should never be in individual shares - start with an tracker ETF for a few years before branching out to active management or even individual shares.
- unethical_ban 6y ago
  I'm not a big fan of "RH should protect people more" They clearly did not have the finances available to provide the service they offer. Regardless of whether that was forced on them, the outcome was RH's failures manipulating a market. RH should be fined and sued out of existence. I also don't see the value in short selling. Seems like a way to gamble legally in all 50 states.
  - pwnguin 6y ago
    Short selling is absurdly risky, but selling put options should probably remain allowed.
    - mlrtime 6y ago
      Probably? Selling short a put is long the stock. I'm glad we aren't creating SEC rules based off of peoples' feelings.
Chris2048 6y ago
> the entities who actually acted in bad faith Then RH can sue them. As the consumer interface, the buck either stops with them, or they pass it along.
pwnguin 6y ago
I'm not even sure Robinhood is falling. Yes they had to take out a billion dollar bridge loan, but that means their assets under management just shot up massively. And now that the frenzy is over, they repay the loan and keep the assets under management.
Taylor_OD 6y ago
You think Robinhood did nothing wrong in the eyes of the law? Or that they did not treat their customers (users of the app not the purchasers of their data) poorly? Or that their app did not disable users from trading shares of stocks? I'd genuinely shocked to see someone say they think Robinhood didnt do anything wrong. Unless I'm misunderstanding you.
- diehunde 6y ago
  What they did wrong was not having the resources to handle that volatile environment. I know other companies also halted trading, but many didn't. They are bitting off more than they can chew.
  - CydeWeys 6y ago
    Is that illegal though? I don't think so. And also, they were offering customers a courtesy to use unsettled funds to buy stocks immediately, rather than waiting two business days for funds to clear. Most customers generally appreciate this feature (I certainly do!). The only thing I'd say they did wrong (but not illegally so) was not having finer-grained controls ready to go to be able to shut down purchases of shares using unsettled funds and/or margin, while still allowing purchases by users with settled funds. This is a feature that some other brokers already have, i.e. you can buy large caps with unsettled funds but penny stocks require the use of settled funds.
    - nrmitchi 6y ago
      In this situation, I don't think that the distinction between settled and unsettled funds would have mattered. Robinhood was still responsible for the clearinghouse-mandated deposit requirements, whether the purchase was from settled or unsettled funds. My understanding is that the deposit funds, and the funds-fronted-on-margin, are two different groups of money.
      - CydeWeys 6y ago
        But the point is that they can meet the deposit requirements on settled customer funds easily with those funds themselves, since those funds are actually settled. But on unsettled customer funds, they have to come up with their own money to bridge the gap until the customer funds settle.
totalZero 6y ago
The hedge fund shorts were irresponsible but I don't think there exists any credible argument that they were illegal.
wilde 6y ago
Robinhood created this problem for themselves by not clearly communicating what was going on as it was happening. Plenty of other brokers ran into capital requirements issues and explained what was happening in real time. Robinhood didn’t and so they let internet conspiracies fill the void.

omgJustTest 6y ago

Hard to hear. Robinhood has normalized pay for flow, a service that is literally shaving cash off each order in exchange for “free trading”. Pff can only generate net revenue by making traders pay more per trade than actual best execution, which Robinhood is suppose to be legally required to deliver. The SEC in the 90s and 2000s thought the practice amounted to middle manning traders and should be illegal. Basically: Robinhood gives stock purchases to a third party, who pays Robinhood for each transaction in “rebates”. If you have a free trading account other than fidelity, you are paying insane transaction fees that are hidden from you by the pff. It’s middle manning, and Robinhood is paid to enable it. Not a fall guy, just not all the guys that need to fall.

croon 6y ago
Isn't the not-so-secret secret that every other brokerage also sells flow [0], but still charges the end user? Making Robinhood just less bad than the rest. [0] https://piper2.bluematrix.com/sellside/EmailDocViewer?encrypt=6470f5cc-e225-497c-922d-e00e6188ed78&mime=pdf&co=Piper&id=FSG-ER@psc.com&source=mail https://piper2.bluematrix.com/sellside/EmailDocViewer?encryp...
omgJustTest 6y ago
On the topic of trading freezes and capital requirements: there are a lot of ppl who will loan a broker money. Intersect them with the number of ppl who will and can PFF and now you are talking about 1-10orgs and most of them are high frequency middle manning the orders coming in. If you are one of the 1-10 orgs who do this 1. You’re scum and 2. You are big enough to be on both sides of this definition of the conflict of interests What happens to RH rebates if they no longer have 1-10 of those PFF customers?
astura 6y ago
Isn't this something almost all brokerages do? https://efipm.medium.com/zero-commission-brokers-selling-order-flow-are-the-new-intermediaries-who-will-disrupt-them-5e79628b32f1 https://efipm.medium.com/zero-commission-brokers-selling-ord...
mlrtime 6y ago
When RH sells to a internalizer for payment (PFOF) it is always inside the NBBO (National Best Bid and Offer) which is always going to be a better price than what you would receive on a public exchange AND there are 0 commissions.
- rcxdude 6y ago
  Exactly. It's not the user paying for it, it's whoever would have been on the other side of the trade without the pay-for-flow.
  - pests 6y ago
    Right, because that other side of the trade is purposefully trading against this bought flow thinking they can earn more opposed to competing with institutionalized investors.

bidirectional 6y ago

What illegal shorts? Short interest being above 100% of floatation can happen perfectly naturally without anything illegal being done.

rob74 6y ago
Yeah, about as "perfectly natural" as the stock market soaring while the economy is in crisis (i.e. logical, but completely perverted).
- MperorM 6y ago
  why is shorting a company perverted? I would argue it's a great asset to society. Eg. those who shorted stock because they expected covid-19 to cause a market dip, sent a giant signal to the entire world that covid was going to be a big problem.
  - rob74 6y ago
    Nothing against shorting in principle, the OP and me were just referring to being able to "sell" more shares of a company than there are in existence...
    - MperorM 6y ago
      How is that perverted? Shorting a stock is fundamentally no different than other types of debt. Imagine an economy of 3 people, A, B and C. A has $5. B borrows $5 from A. C borrows $5 from B. A borrows $5 form C. The economy started with $5 and $0 debt, the economy ends with $5 and $15 debt. Despite the fact that the society's total debt is now 300% the size of its economy, it is no different than how it started. Debt isn't inherently bad. Debt is a tool that allows us to collaborate.
    - smogcutter 6y ago
      That’s not mysterious or suspicious at all, it’s just a consequence of being able to lend something fungible. Very similar to how bank lending affects the supply of money.

Railsify 6y ago

Were the shorts illegal? I keep seeing the accusation but I don't think it's possible to short sell a stock that you have not borrowed.

ceejayoz 6y ago
It's definitely possible. https://en.wikipedia.org/wiki/Naked_short_selling https://en.wikipedia.org/wiki/Naked_short_selling
- Railsify 6y ago
  Possible but would require a licensed broker to break the law. It's like check kiting but with the aid of a broker the broker would have to credit your account shares that do not exist.
  - ceejayoz 6y ago
    > In May 2012, lawyers acting for Goldman accidentally released an unredacted document revealing compromising internal discussions regarding naked short selling. "Fuck the compliance area – procedures, schmecedures", Rolling Stone Magazine quoted Peter Melz, the former president of Merrill Lynch Professional Clearing Corp. as saying in the document.
    - user-the-name 6y ago
      > In May 2012
      - ceejayoz 6y ago
        That's not long ago, and it's after the practice was banned. You think the banking industry has had an ethical epiphany and sudden love for regulations in the last decade?
        user-the-name 6y ago

pjc50 6y ago

> the ones who attempted illegal shorts [citation needed]; is this actually true or is this just part of the WSB sales pitch?

BunsanSpace 6y ago
Melvin capital and several other hedge funds engaged in naked short selling, and many backbone clearing houses enabled it via share counter fitting. (naked short selling is illegal) The deeper issue is the SEC not cracking down on the fail to delivers and naked short selling. I think Robinhood and other brokerages are the scape goats here. Their hands where tied when the companies that processed their orders refused to process trades for those stocks. The whole debacle has exposed a lot of corrupt, fraud and other nasties while showing the SEC is completely unwilling to do their job.
- penagwin 6y ago
  Is there a source for this? I watched their testimony to congress and they said they aren't even able to place naked shorts/calls. You can still get a short interest above 100% without selling naked calls/shorts.
  - nrmitchi 6y ago
    This whole "illegal naked short sales" story recently is a conspiracy theory, not a valid theory, so you're not going to get a source. The main difference between a conspiracy theory and a valid theory is that a conspiracy theory is non-falsifiable; any evidence to the contrary is dismissed as "fake news" or "the deep state is hiding the evidence". In your example here of "they testified to Congress under penalty of perjury", the response will be "Ya, they lied, because they knew the whole system would back them. They faked all of the records that show that they didn't actually do it!". Now this isn't to say that a conspiracy theory can't be right in the end, but that still doesn't make it a valid theory.
    - fractionalhare 6y ago

ericmay 6y ago

My issue isn’t the shorts, it’s when the shorts (or others) start messing with the game board. You should be able to short a stock, no doubt about it. But you shouldn’t be able to coordinate “short attacks” or use other tactics. I wonder if it may be a good idea to remove computers from trading except for execution enacted by humans because of human research. Should Bloomberg terminals be legal? Should everyone effectively have the same hardware? I wonder how someone in Oklahoma can compete with a large bank. Should they be able to?

gruez 6y ago
>But you shouldn’t be able to coordinate “short attacks” or use other tactics. https://www.institutionalinvestor.com/article/b1qdq0y5b79rzb/Wallstreetbets-Conspiracy-Theorists-Claim-a-Short-Ladder-Attack-Brought-Down-GameStop-Short-Sellers-Have-No-Idea-What-They-re-Talking-About https://www.institutionalinvestor.com/article/b1qdq0y5b79rzb...
- ericmay 6y ago
  I'm not saying they used that tactic - but that the use of such tactics shouldn't be allowed.
  - gruez 6y ago
    The point is that the tactic isn't viable in the first place. It's almost like saying that we should ban people from making perpetual motion machines.
    - ericmay 6y ago
      Sure, insert any other similar tactic in place of a short ladder and I'd be interested in the discussion of why or why not it should be allowed. I'm also interested in discussing whether or not ETFs should exist. I wonder at some point if you just kind of eliminate price discovery and prop up zombie companies.
      - 6y ago

fractionalhare 6y ago

Which firms attempted illegal short selling, and what is your specific evidence to support that they did?

SkyBelow 6y ago
Is this needed to make a claim? If I say that someone stole the Declaration of Independence, then I would only need to provide evidence it was stolen, not evidence that shows some particular person stole it. In this case, evidence of illegal shorts is what one would need to provide to back their claim, not evidence that a specific firm engaged in illegal shorts.
- gruez 6y ago
  >In this case, evidence of illegal shorts is what one would need to provide to back their claim Okay, what's the evidence of illegal shorts?
  - Swenrekcah 6y ago
    Everything I (think I) know about this I have learned in the last few weeks so take this with a grain of salt, but I understand that GME shares have failed to deliver a lot which can be evidence of naked shorts which are supposedly illegal.

gitdown42 6y ago

Robinhood deserves negative attention, but not for restricting trades to closing-ony. That appears to not have been much of a choice. They do deserve a lot of negative attention for running a brokerage in a way that invited a lot of risk-ignorant retail traders to instantly trade into leveraged positions for which they should never have been qualified in the first place. Robinhood has the valuation it does because it brought leveraged day trading to the masses. As someone who worked at a brokerage and designed trading tools, leveraged day trading isn't for the masses.

Mauricebranagh 6y ago
And add these adverts plugging "factional" shares at naive first time investors to the list, tbh I think the SEC should encourage share splits once a share gets to Tesla levels. Your first investments should never be in individual shares - start with an tracker ETF for a few years before branching out to active management or even individual shares.
unethical_ban 6y ago
I'm not a big fan of "RH should protect people more" They clearly did not have the finances available to provide the service they offer. Regardless of whether that was forced on them, the outcome was RH's failures manipulating a market. RH should be fined and sued out of existence. I also don't see the value in short selling. Seems like a way to gamble legally in all 50 states.
- pwnguin 6y ago
  Short selling is absurdly risky, but selling put options should probably remain allowed.
  - mlrtime 6y ago
    Probably? Selling short a put is long the stock. I'm glad we aren't creating SEC rules based off of peoples' feelings.

Chris2048 6y ago

> the entities who actually acted in bad faith Then RH can sue them. As the consumer interface, the buck either stops with them, or they pass it along.

pwnguin 6y ago

I'm not even sure Robinhood is falling. Yes they had to take out a billion dollar bridge loan, but that means their assets under management just shot up massively. And now that the frenzy is over, they repay the loan and keep the assets under management.

Taylor_OD 6y ago

You think Robinhood did nothing wrong in the eyes of the law? Or that they did not treat their customers (users of the app not the purchasers of their data) poorly? Or that their app did not disable users from trading shares of stocks? I'd genuinely shocked to see someone say they think Robinhood didnt do anything wrong. Unless I'm misunderstanding you.

diehunde 6y ago
What they did wrong was not having the resources to handle that volatile environment. I know other companies also halted trading, but many didn't. They are bitting off more than they can chew.
- CydeWeys 6y ago
  Is that illegal though? I don't think so. And also, they were offering customers a courtesy to use unsettled funds to buy stocks immediately, rather than waiting two business days for funds to clear. Most customers generally appreciate this feature (I certainly do!). The only thing I'd say they did wrong (but not illegally so) was not having finer-grained controls ready to go to be able to shut down purchases of shares using unsettled funds and/or margin, while still allowing purchases by users with settled funds. This is a feature that some other brokers already have, i.e. you can buy large caps with unsettled funds but penny stocks require the use of settled funds.
  - nrmitchi 6y ago
    In this situation, I don't think that the distinction between settled and unsettled funds would have mattered. Robinhood was still responsible for the clearinghouse-mandated deposit requirements, whether the purchase was from settled or unsettled funds. My understanding is that the deposit funds, and the funds-fronted-on-margin, are two different groups of money.
    - CydeWeys 6y ago
      But the point is that they can meet the deposit requirements on settled customer funds easily with those funds themselves, since those funds are actually settled. But on unsettled customer funds, they have to come up with their own money to bridge the gap until the customer funds settle.

totalZero 6y ago

The hedge fund shorts were irresponsible but I don't think there exists any credible argument that they were illegal.

wilde 6y ago

Robinhood created this problem for themselves by not clearly communicating what was going on as it was happening. Plenty of other brokers ran into capital requirements issues and explained what was happening in real time. Robinhood didn’t and so they let internet conspiracies fill the void.