4 ms·

Right, that’s what’s confusing. To rephrase, I’m hearing that brokers can execute some primitive operation <lock up> which correctly and credibly persuades the

by SilasX 5y ago

Right, that’s what’s confusing. To rephrase, I’m hearing that brokers can execute some primitive operation <lock up> which correctly and credibly persuades the financial market that $X is available to settle a transaction. But <lock up> is only a “valid operation” when executed with “the broker’s own funds”. Why? To whom would “locking up $X from broker funds” be a valid operation, but “locking up $X from client funds” wouldn’t be? Your comments are saying “that’s just how it is”, but that’s not a reason. Is it a wholly arbitrary operation handed down from on high that accomplishes nothing? Is it a matter of the financial system not being able to trust client-originating money?

gruez 5y ago
>But <lock up> is only a “valid operation” when executed with “the broker’s own funds”. Why? regulations, presumably to protect the retail trader. It was part of dodd-frank. https://twitter.com/kralctrebor/status/1354952686165225478 https://twitter.com/kralctrebor/status/1354952686165225478 >Is it a matter of the financial system not being able to trust client-originating money? Yeah pretty much. If every trader had their funds sitting in one place (with the clearinghouse or the fed), then the clearinghouse wouldn't need a deposit system since they can easily validate whether everyone has the funds.
- SilasX 5y ago
  I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. Were you presenting one? Did I miss it? If you weren’t, you’re not really resolving my confusion here.
  - gruez 5y ago
    >I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. "unsafe" is the wrong word here. That would imply the clearinghouse doesn't think the collateral is as good if it came from the customer rather than the broker. This isn't the case. The requirement to use broker funds is not to protect the clearinghouse, it's to protect the customer in case the clearinghouse seizes the collateral (as they're allowed to do) when things go south. By using broker (or their creditor's funds), the customer's funds aren't at risk.
    - SilasX 5y ago
      So ... the clearinghouse is perfectly capable of seizing collateral and running off without delivering the promised shares, but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? This still doesn't make sense.
      - gruez 5y ago
        >but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? The collateral is lost either way, but when the broker puts up the collateral the broker is on the hook for the loss, not the customer.
        SilasX 5y ago
        Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too.
        gruez 5y ago
        >Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? Regulations? Presumably customer funds are segregated from company funds, so the company and the clearinghouse can't raid it if they need money. >At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). >That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too. by "seize" I don't mean the clearinghouse can walk into the offices (or bank accounts) of any of their member and grab whatever they want. They're seizing (or more accurately, refusing to return) the deposit that the member sent on the day of trade.

by SilasX 5y ago

gruez 5y ago

>But <lock up> is only a “valid operation” when executed with “the broker’s own funds”. Why? regulations, presumably to protect the retail trader. It was part of dodd-frank. https://twitter.com/kralctrebor/status/1354952686165225478 https://twitter.com/kralctrebor/status/1354952686165225478 >Is it a matter of the financial system not being able to trust client-originating money? Yeah pretty much. If every trader had their funds sitting in one place (with the clearinghouse or the fed), then the clearinghouse wouldn't need a deposit system since they can easily validate whether everyone has the funds.

SilasX 5y ago
I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. Were you presenting one? Did I miss it? If you weren’t, you’re not really resolving my confusion here.
- gruez 5y ago
  >I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. "unsafe" is the wrong word here. That would imply the clearinghouse doesn't think the collateral is as good if it came from the customer rather than the broker. This isn't the case. The requirement to use broker funds is not to protect the clearinghouse, it's to protect the customer in case the clearinghouse seizes the collateral (as they're allowed to do) when things go south. By using broker (or their creditor's funds), the customer's funds aren't at risk.
  - SilasX 5y ago
    So ... the clearinghouse is perfectly capable of seizing collateral and running off without delivering the promised shares, but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? This still doesn't make sense.
    - gruez 5y ago
      >but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? The collateral is lost either way, but when the broker puts up the collateral the broker is on the hook for the loss, not the customer.
      - SilasX 5y ago
        Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too.
        gruez 5y ago
        >Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? Regulations? Presumably customer funds are segregated from company funds, so the company and the clearinghouse can't raid it if they need money. >At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). >That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too. by "seize" I don't mean the clearinghouse can walk into the offices (or bank accounts) of any of their member and grab whatever they want. They're seizing (or more accurately, refusing to return) the deposit that the member sent on the day of trade.