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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 pro

by 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
      eg. https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict...
  - mbesto 5y ago
    > People have weird ideas about how settlement works. Just to be clear... I too am not aware of any evidence that this was the case. HOWEVER, there is a clear link of stakeholders between Citadel and Melvin Capital. Citadel provides the settlement for RH and it's entirely plausible that Ken Griffin reminded Robinhood who's paying their bills. RH had the shroud of legitimate direct financial reasons to stall order flow - so it was a win-win at the loss of PR/customer service.
    - tptacek 5y ago
      There's a lot wrong with this argument, but one of the most obvious problems with it is that lots of brokerages imposed limits on GME trading, including Schwab.
      - mbesto 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.

by c54 5y ago

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
    eg. https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict...
- mbesto 5y ago
  > People have weird ideas about how settlement works. Just to be clear... I too am not aware of any evidence that this was the case. HOWEVER, there is a clear link of stakeholders between Citadel and Melvin Capital. Citadel provides the settlement for RH and it's entirely plausible that Ken Griffin reminded Robinhood who's paying their bills. RH had the shroud of legitimate direct financial reasons to stall order flow - so it was a win-win at the loss of PR/customer service.
  - tptacek 5y ago
    There's a lot wrong with this argument, but one of the most obvious problems with it is that lots of brokerages imposed limits on GME trading, including Schwab.
    - mbesto 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.