17 ms·

Robinhood will fail again: stock trading is broken

41 points by jaredeklee13 5y ago

gruez 5y ago
>Robinhood users could not sell their GameStop positions while trading was frozen, a particularly difficult situation for those traders who borrowed money to purchase the stock. This is false. You could close positions (ie. sell), just not open new positions. https://blog.robinhood.com/news/2021/1/28/keeping-customers-informed-through-market-volatility https://blog.robinhood.com/news/2021/1/28/keeping-customers-... >In light of recent volatility, we restricted transactions for certain securities to position closing only.
- c54 5y ago
  Agreed. I think plenty of articles have covered what happened that day, and the conclusion is that the central clearing risk controls (which are designed to protect both traders as well as the system as a whole) kicked in appropriately to handle the skyrocketing single stock risk. The big problem here IMO is Robinhood's messaging. What the heck was their PR department thinking? Why didn't they just come right out and say "hey look, we have legal requirements which we're unable to fulfill in the short term, here's an explanation of the risk controls we're unable to meet. We want to help you do these trades safely, we're working to put more capital on the table for you, our beloved users"? Why molly-coddle your user base with "uhh sorry can't, goodbye"?
  - hemloc_io 5y ago
    I agree and there are lots of potential reasons, some of them better than others. 1. PR people didn't really understand what was going on 2. Ppl at the company didn't expect retail traders to understanding what was going on. 3. They had trouble with regulation in the past and are trying to appear as a legit brokerage. 4. Maybe they figured that they could get enough capital quickly enough to open up trading again or they were in active negations with DTCC. (Which they sort of did.) EDIT: Formatting
    - c54 5y ago
      This makes sense. It’s easy to speculate on the right thing to have done, after the wrong thing has already been done. In the heat of the GME pump I’m sure things where 100% chaotic at robinhood HQ
  - zenbane 5y ago
    The big problem is a retail broker shutting down trading to protect hedge funds who were short. Confirmed in Congressional Testimony: "NSCC examined the market activity and clearing member margin requirements to consider whether it would be appropriate to adjust or waive the capital premium charge, as permitted under the applicable rule. NSCC determined that the spike in market volatility, particularly in the so-called meme stocks, was a material contributor to elevated VaR charges for several clearing members, including most of those subject to capital premium charges. NSCC determined that it would be appropriate to waive the capital premium charge for all clearing members, using the discretion provided in the rule to reduce or waive this charge.4 Just after 9 a.m., prior to the market opening at 9:30 a.m., updated daily margin statements reflecting the waiver were released in NSCC’s portal and revised excess/deficiency notices were emailed to clearing members. All clearing members timely satisfied their clearing fund requirements...NSCC’s role in the market is a neutral one. It does not impose trading restrictions upon its clearing members or their customers, and it did not instruct any clearing member to impose restrictions during the market volatility events of late January." - https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-February-2021-Mike-Bodson.pdf https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-Febru...
    - deleted 5y ago
      [deleted]
    - tptacek 5y ago
      There's no evidence at all that any retail broker --- many besides Robinhood applied the same restrictions --- did anything to protect "hedge funds that were short", and substantial countervailing evidence. People have weird ideas about how settlement works.
      - oakwhiz 5y ago
        What countervailing evidence would that be? Do you have any links which explain what you mean?
        gruez 5y ago
  - MattGaiser 5y ago
    My understanding was that Robinhood was basically out of money to put up as collateral. What happens when a bank or broker announces that they are out of money? Historically, there were runs on them as customers tried to pull their money out to prevent being left with a worthless IOU. Now, that is now how things actually work, but I could easily see such an announcement causing that.
  - mbesto 5y ago
    > What the heck was their PR department thinking? You must be new to RH's PR team. This is the same company that tried to roll out a 3% savings account, but had to pull it back because they deceived the public about it actually being a true savings account[0]. But the best part of this campaign was they got to keep all of the customer acquisition (even if some churned) to people they could upsell into brokerage accounts. Legality and ethics aside, this probably netted them more customers/money than the perceived mishap of the rollout...win for the PR team. [0] - https://clark.com/personal-finance-credit/robinhood-checking-savings-3-percent/ https://clark.com/personal-finance-credit/robinhood-checking...
  - legitster 5y ago
    Robinhood would rather let people assume malice than admit to incompetence.
  - HWR_14 5y ago
    The problem was even people with no leverage were able to purchase GameStop stock. Yes, people who were using (or had already taken) any credit were locked up due to their collateral being all screwy, but people with cash were only impacted because RobinHood didn't properly manage their reserves.
    - gruez 5y ago
      >but people with cash were only impacted because RobinHood didn't properly manage their reserves. ...because they failed to prepare for a 99 percentile event?
      - zenbane 5y ago
        Robinhood, along with half a dozen other banks/brokers who were well capitalized all decided to restrict trading, and continued to do so until the price was 1/10th of the high. Just a little poor money management folks, nothing to see here!
        gruez 5y ago
        >Robinhood, along with half a dozen other banks/brokers who were well capitalized They weren't well capitalized. What gave you that idea? Just to preempt the "but DTCC said so" reply: https://news.ycombinator.com/item?id=28000185 https://news.ycombinator.com/item?id=28000185 >and continued to do so until the price was 1/10th of the high Because the price isn't a relevant factor. GME being 1/10th the price just means that people would buy 10x more shares, leading to the same deposit requirements.
      - HWR_14 5y ago
        >>but people with cash were only impacted because RobinHood didn't properly manage their reserves. >...because they failed to prepare for a 99 percentile event? Because they used the funds that their clients had deposited to buy stocks with as cash to make their margin business work. At least that's how I understand it.
- spiderice 5y ago
  Yes, but by doing so RH drastically lowered the value of their customer's assets. It's like your real estate agent knocking down a few walls of your home before selling it for half price.
  - gruez 5y ago
    >It's like your real estate agent knocking down a few walls of your home before selling it for half price. Not really, because there's an extenuating circumstance that forced them to do it (ie. DTCC raising deposit requirements).
    - oakwhiz 5y ago
      That's untrue. The DTCC waived the additional capital clearing charges for all clearing members prior to market open on January 28th. All DTCC clearing members satisfied their requirements before the market opened. EDIT: Updated with source. I'm curious about the downvotes. 1. Page 4. https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-February-2021-Mike-Bodson.pdf https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-Febru...
      - gruez 5y ago
        >The DTCC waived the additional capital clearing charges for all clearing members prior to market open on January 28th. Source? And for how long? >All DTCC clearing members satisfied their requirements before the market opened. That says nothing about the requirements they'll face later, as a result of trades made on the 28th.
        tptacek 5y ago
        This is a WSB conspiracy theory. What in fact seems to have happened (I'm going from a reported account in Fortune) is that the NSCC substantially waved a multi-billion-dollar collateral call that would have bankrupted Robinhood because they halted trading in the meme stocks at question. WSB has taken this to mean that NSCC was unconcerned with the collateral risk.
- jaredeklee13 5y ago
  Appreciate the correction. Will update. I mixed up my frozen trading stories here. It was March 2020 where we saw fully frozen trades due to internal Robinhood infrastructure failures, unrelated to DTCC infrastructure and margin.
- deleted 5y ago
  [deleted]
edoceo 5y ago
Critical observation: ""The risk of a single centralized party was realized at the worst possible time when the system could least tolerate it."" I can't believe our SPOF actually F-ed!! As is tradition.
ForHackernews 5y ago
Reminder that Robinhood are the folks who wrote the "infinite money cheat code" bug: https://www.youtube.com/watch?v=qKXrVriacUM https://www.youtube.com/watch?v=qKXrVriacUM
optimalsolver 5y ago
The fact that so many of the bandwagoners didn't understand what a margin call is proves that Robinhood was right to save them from themselves.
- Ecstatify 5y ago
  Yes because Robinhood really cares about it's users. SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321
  - FabHK 5y ago
    The gist of it is that RH was cheaper than other brokerages at the time for small trades, and more expensive for big trades (because it dropped the commission (independent of trade size), but offered a somewhat worse price improvement vis-a-vis the national best bid offer, pocketing the difference (proportional to trade size). It's not especially heinous, but they were not very transparent about it (to be fair, it probably would have taken a bit to explain that they took a greater cut of the price improvement vs the legal benchmark).
zz865 5y ago
Robinhood walks a really fine line between a reputable broker and legalized gambling. There isn't much difference between Robinhood app and a casino app. I'm surprised they have been allowed to turn stock trading into a game.
- MattGaiser 5y ago
  People treating stocks as a game long preceded Robinhood.
  - zz865 5y ago
    True but at least brokers didn't make it so easy to get margin or options and then have cute animations and other tech-inspired addictive features.
    - betterunix2 5y ago
      I had a margin account long before RH, back when I was living on a grad student's salary, along with options trading approval. Even the big brokerages with trillions in customer assets have been handing these things out like candy for a long time. All RH did was substantially reduce fees and make trading a little more exciting for unsophisticated "investors."
    - filoleg 5y ago
      >True but at least brokers didn't make it so easy to get margin or options They did. I personally tried (in addition to RH) WeBull and Fidelity. Both allowed me to access margin and options just as easily. The only difficulty I had with Fidelity was their atrocious UX (not just for options, but in every single aspect). >then have cute animations and other tech-inspired addictive features. Tech-inspired addictive features? Like which ones? The only "addictive" feature that RH has over Fidelity is UX that doesn't suck massively. Had to help a friend recently with something as simple as closing out a trade on Fidelity, and we spent 10-15 mins trying to figure out how to do it. This is a disgrace, given how basic and fundamental of an operation closing a trade is. Imagine if gmail has made it extremely difficult to reply to an email, by making you click through bajillion submenus and dropdowns to even get to the textbox. That's how bad it is.
brokenbrokers 5y ago
One reason why we made http://brokenbrokers.com/ http://brokenbrokers.com/ is because brokers are so unreliable. Nearly once a week, outages prevent individuals from trading DURING TRADING HOURS. In one poll conducted in the FinTwit community, about 70% of individuals said they could not trade because of an outage at some point. Wild. We're hoping to bring light to this issue, and hold brokers responsible.
- morpheos137 5y ago
  Originally the purpose of investing in equities was not to day trade.
- jaredeklee13 5y ago
  Love it!
  - brokenbrokers 5y ago
    Thank you very much! Changes and Updates to come soon!
- MattGaiser 5y ago
  Your site currently says every broker is broken.
  - brokenbrokers 5y ago
    Yes, it is crowdsourced and some jerk went an submitted down clicks on everything. Sorry about that. It has been fixed.
- urda 5y ago
  You have a really bad sales pitch when you build a site that claims to track brokers being broken, and your entire site is broken. Might want to polish this up a bit first mate.
  - gruez 5y ago

41 points by jaredeklee13 5y ago

>Robinhood users could not sell their GameStop positions while trading was frozen, a particularly difficult situation for those traders who borrowed money to purchase the stock. This is false. You could close positions (ie. sell), just not open new positions. https://blog.robinhood.com/news/2021/1/28/keeping-customers-informed-through-market-volatility https://blog.robinhood.com/news/2021/1/28/keeping-customers-... >In light of recent volatility, we restricted transactions for certain securities to position closing only.

c54 5y ago
Agreed. I think plenty of articles have covered what happened that day, and the conclusion is that the central clearing risk controls (which are designed to protect both traders as well as the system as a whole) kicked in appropriately to handle the skyrocketing single stock risk. The big problem here IMO is Robinhood's messaging. What the heck was their PR department thinking? Why didn't they just come right out and say "hey look, we have legal requirements which we're unable to fulfill in the short term, here's an explanation of the risk controls we're unable to meet. We want to help you do these trades safely, we're working to put more capital on the table for you, our beloved users"? Why molly-coddle your user base with "uhh sorry can't, goodbye"?
- hemloc_io 5y ago
  I agree and there are lots of potential reasons, some of them better than others. 1. PR people didn't really understand what was going on 2. Ppl at the company didn't expect retail traders to understanding what was going on. 3. They had trouble with regulation in the past and are trying to appear as a legit brokerage. 4. Maybe they figured that they could get enough capital quickly enough to open up trading again or they were in active negations with DTCC. (Which they sort of did.) EDIT: Formatting
  - c54 5y ago
    This makes sense. It’s easy to speculate on the right thing to have done, after the wrong thing has already been done. In the heat of the GME pump I’m sure things where 100% chaotic at robinhood HQ
- zenbane 5y ago
  The big problem is a retail broker shutting down trading to protect hedge funds who were short. Confirmed in Congressional Testimony: "NSCC examined the market activity and clearing member margin requirements to consider whether it would be appropriate to adjust or waive the capital premium charge, as permitted under the applicable rule. NSCC determined that the spike in market volatility, particularly in the so-called meme stocks, was a material contributor to elevated VaR charges for several clearing members, including most of those subject to capital premium charges. NSCC determined that it would be appropriate to waive the capital premium charge for all clearing members, using the discretion provided in the rule to reduce or waive this charge.4 Just after 9 a.m., prior to the market opening at 9:30 a.m., updated daily margin statements reflecting the waiver were released in NSCC’s portal and revised excess/deficiency notices were emailed to clearing members. All clearing members timely satisfied their clearing fund requirements...NSCC’s role in the market is a neutral one. It does not impose trading restrictions upon its clearing members or their customers, and it did not instruct any clearing member to impose restrictions during the market volatility events of late January." - https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-February-2021-Mike-Bodson.pdf https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-Febru...
  - deleted 5y ago
    [deleted]
  - tptacek 5y ago
    There's no evidence at all that any retail broker --- many besides Robinhood applied the same restrictions --- did anything to protect "hedge funds that were short", and substantial countervailing evidence. People have weird ideas about how settlement works.
    - oakwhiz 5y ago
      What countervailing evidence would that be? Do you have any links which explain what you mean?
      - gruez 5y ago
- MattGaiser 5y ago
  My understanding was that Robinhood was basically out of money to put up as collateral. What happens when a bank or broker announces that they are out of money? Historically, there were runs on them as customers tried to pull their money out to prevent being left with a worthless IOU. Now, that is now how things actually work, but I could easily see such an announcement causing that.
- mbesto 5y ago
  > What the heck was their PR department thinking? You must be new to RH's PR team. This is the same company that tried to roll out a 3% savings account, but had to pull it back because they deceived the public about it actually being a true savings account[0]. But the best part of this campaign was they got to keep all of the customer acquisition (even if some churned) to people they could upsell into brokerage accounts. Legality and ethics aside, this probably netted them more customers/money than the perceived mishap of the rollout...win for the PR team. [0] - https://clark.com/personal-finance-credit/robinhood-checking-savings-3-percent/ https://clark.com/personal-finance-credit/robinhood-checking...
- legitster 5y ago
  Robinhood would rather let people assume malice than admit to incompetence.
- HWR_14 5y ago
  The problem was even people with no leverage were able to purchase GameStop stock. Yes, people who were using (or had already taken) any credit were locked up due to their collateral being all screwy, but people with cash were only impacted because RobinHood didn't properly manage their reserves.
  - gruez 5y ago
    >but people with cash were only impacted because RobinHood didn't properly manage their reserves. ...because they failed to prepare for a 99 percentile event?
    - zenbane 5y ago
      Robinhood, along with half a dozen other banks/brokers who were well capitalized all decided to restrict trading, and continued to do so until the price was 1/10th of the high. Just a little poor money management folks, nothing to see here!
      - gruez 5y ago
        >Robinhood, along with half a dozen other banks/brokers who were well capitalized They weren't well capitalized. What gave you that idea? Just to preempt the "but DTCC said so" reply: https://news.ycombinator.com/item?id=28000185 https://news.ycombinator.com/item?id=28000185 >and continued to do so until the price was 1/10th of the high Because the price isn't a relevant factor. GME being 1/10th the price just means that people would buy 10x more shares, leading to the same deposit requirements.
    - HWR_14 5y ago
      >>but people with cash were only impacted because RobinHood didn't properly manage their reserves. >...because they failed to prepare for a 99 percentile event? Because they used the funds that their clients had deposited to buy stocks with as cash to make their margin business work. At least that's how I understand it.
spiderice 5y ago
Yes, but by doing so RH drastically lowered the value of their customer's assets. It's like your real estate agent knocking down a few walls of your home before selling it for half price.
- gruez 5y ago
  >It's like your real estate agent knocking down a few walls of your home before selling it for half price. Not really, because there's an extenuating circumstance that forced them to do it (ie. DTCC raising deposit requirements).
  - oakwhiz 5y ago
    That's untrue. The DTCC waived the additional capital clearing charges for all clearing members prior to market open on January 28th. All DTCC clearing members satisfied their requirements before the market opened. EDIT: Updated with source. I'm curious about the downvotes. 1. Page 4. https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-February-2021-Mike-Bodson.pdf https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-Febru...
    - gruez 5y ago
      >The DTCC waived the additional capital clearing charges for all clearing members prior to market open on January 28th. Source? And for how long? >All DTCC clearing members satisfied their requirements before the market opened. That says nothing about the requirements they'll face later, as a result of trades made on the 28th.
      - tptacek 5y ago
        This is a WSB conspiracy theory. What in fact seems to have happened (I'm going from a reported account in Fortune) is that the NSCC substantially waved a multi-billion-dollar collateral call that would have bankrupted Robinhood because they halted trading in the meme stocks at question. WSB has taken this to mean that NSCC was unconcerned with the collateral risk.
jaredeklee13 5y ago
Appreciate the correction. Will update. I mixed up my frozen trading stories here. It was March 2020 where we saw fully frozen trades due to internal Robinhood infrastructure failures, unrelated to DTCC infrastructure and margin.
deleted 5y ago
[deleted]

edoceo 5y ago

Critical observation: ""The risk of a single centralized party was realized at the worst possible time when the system could least tolerate it."" I can't believe our SPOF actually F-ed!! As is tradition.

ForHackernews 5y ago

Reminder that Robinhood are the folks who wrote the "infinite money cheat code" bug: https://www.youtube.com/watch?v=qKXrVriacUM https://www.youtube.com/watch?v=qKXrVriacUM

optimalsolver 5y ago

The fact that so many of the bandwagoners didn't understand what a margin call is proves that Robinhood was right to save them from themselves.

Ecstatify 5y ago
Yes because Robinhood really cares about it's users. SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321
- FabHK 5y ago
  The gist of it is that RH was cheaper than other brokerages at the time for small trades, and more expensive for big trades (because it dropped the commission (independent of trade size), but offered a somewhat worse price improvement vis-a-vis the national best bid offer, pocketing the difference (proportional to trade size). It's not especially heinous, but they were not very transparent about it (to be fair, it probably would have taken a bit to explain that they took a greater cut of the price improvement vs the legal benchmark).

zz865 5y ago

Robinhood walks a really fine line between a reputable broker and legalized gambling. There isn't much difference between Robinhood app and a casino app. I'm surprised they have been allowed to turn stock trading into a game.

MattGaiser 5y ago
People treating stocks as a game long preceded Robinhood.
- zz865 5y ago
  True but at least brokers didn't make it so easy to get margin or options and then have cute animations and other tech-inspired addictive features.
  - betterunix2 5y ago
    I had a margin account long before RH, back when I was living on a grad student's salary, along with options trading approval. Even the big brokerages with trillions in customer assets have been handing these things out like candy for a long time. All RH did was substantially reduce fees and make trading a little more exciting for unsophisticated "investors."
  - filoleg 5y ago
    >True but at least brokers didn't make it so easy to get margin or options They did. I personally tried (in addition to RH) WeBull and Fidelity. Both allowed me to access margin and options just as easily. The only difficulty I had with Fidelity was their atrocious UX (not just for options, but in every single aspect). >then have cute animations and other tech-inspired addictive features. Tech-inspired addictive features? Like which ones? The only "addictive" feature that RH has over Fidelity is UX that doesn't suck massively. Had to help a friend recently with something as simple as closing out a trade on Fidelity, and we spent 10-15 mins trying to figure out how to do it. This is a disgrace, given how basic and fundamental of an operation closing a trade is. Imagine if gmail has made it extremely difficult to reply to an email, by making you click through bajillion submenus and dropdowns to even get to the textbox. That's how bad it is.

brokenbrokers 5y ago

One reason why we made http://brokenbrokers.com/ http://brokenbrokers.com/ is because brokers are so unreliable. Nearly once a week, outages prevent individuals from trading DURING TRADING HOURS. In one poll conducted in the FinTwit community, about 70% of individuals said they could not trade because of an outage at some point. Wild. We're hoping to bring light to this issue, and hold brokers responsible.

morpheos137 5y ago
Originally the purpose of investing in equities was not to day trade.
jaredeklee13 5y ago
Love it!
- brokenbrokers 5y ago
  Thank you very much! Changes and Updates to come soon!
MattGaiser 5y ago
Your site currently says every broker is broken.
- brokenbrokers 5y ago
  Yes, it is crowdsourced and some jerk went an submitted down clicks on everything. Sorry about that. It has been fixed.
urda 5y ago
You have a really bad sales pitch when you build a site that claims to track brokers being broken, and your entire site is broken. Might want to polish this up a bit first mate.
- gruez 5y ago