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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

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
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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
      I use Schwab. They only limited option trading, but I could freely buy and sell GME. This was true for many of the other major brokerages. By all accounts, RH was the most restrictive and had the highest number of users placing non-sell orders. Very different ball game. What else is wrong?
  - gruez 5y ago
    >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. In other words, "there's no evidence that they did it, but they stood to benefit so they probably did it"?
    - kasey_junk 5y ago
      I’m not even convinced there is evidence Citadel stood to gain from Melvin doing well. The terms of their deal weren’t disclosed but a lot of the news stories suggested Citadel got a slice of Melvin for a line of credit. That’s a pretty good distressed asset price!
- zenbane 5y ago
  https://youtu.be/Yq4jdShG_PU https://youtu.be/Yq4jdShG_PU Here is the CEO of a big brokerage explaining how bad of a situation the hedge funds (shorts) were in, they made a terrible trade. All you need to know. Shorts made a terrible bet and had Robinhood cut off retail to save their asses.
  - tptacek 5y ago
    This is WSB logic. More than one entity can, and usually does, make bad decisions in a volatile market.
gruez 5y ago
my reply from another thread: https://news.ycombinator.com/item?id=28000245 https://news.ycombinator.com/item?id=28000245

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
    I use Schwab. They only limited option trading, but I could freely buy and sell GME. This was true for many of the other major brokerages. By all accounts, RH was the most restrictive and had the highest number of users placing non-sell orders. Very different ball game. What else is wrong?
- gruez 5y ago
  >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. In other words, "there's no evidence that they did it, but they stood to benefit so they probably did it"?
  - kasey_junk 5y ago
    I’m not even convinced there is evidence Citadel stood to gain from Melvin doing well. The terms of their deal weren’t disclosed but a lot of the news stories suggested Citadel got a slice of Melvin for a line of credit. That’s a pretty good distressed asset price!
zenbane 5y ago
https://youtu.be/Yq4jdShG_PU https://youtu.be/Yq4jdShG_PU Here is the CEO of a big brokerage explaining how bad of a situation the hedge funds (shorts) were in, they made a terrible trade. All you need to know. Shorts made a terrible bet and had Robinhood cut off retail to save their asses.
- tptacek 5y ago
  This is WSB logic. More than one entity can, and usually does, make bad decisions in a volatile market.

gruez 5y ago

my reply from another thread: https://news.ycombinator.com/item?id=28000245 https://news.ycombinator.com/item?id=28000245