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"Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a delib

"Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a deliberate action that could only have one outcome on the stock price. It doesn't matter what the reason is - underfunded collateral or otherwise. The experience they provided to their customers was "you can only sell this stock, nobody can buy it." That's not their customers' fault. It just isn't. Also, not for nothing, I don't think that many of the larger retail traders in e.g. /r/superstonk are as confused about clearing houses' role as you believe them to be.

dragontamer 4y ago
> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a deliberate action that could only have one outcome on the stock price. Because Robinhood didn't have enough margin to keep buying GME. But if you sold GME, that reduced the margin Robinhood had to keep. ------- In other words: Robinhood has no more money to buy GME on behalf of its customers. It could sell however, because selling unwound Robinhood's GME position. Robinhood (and Robinhood's partners) are "on the hook" for all GME for the 2-days in the T-2 transaction period of modern US trading law. Trades take 2 days to take place, so somebody needs to be "the risky bagholder" whenever a stock's price changes dramatically. Robinhood only had enough money to support X amount of buys. When that money ran out, Robinhood was unable to buy, and could only sell GME. Of course, this only happened for 2 days as the stocks / money exchanged hands. But 2 days is apparently an eternity and none of these stock buyers were buying GME for the long term, just for the hype of it all. So it was all over by the time Robinhood was able to buy again.
- dangerlibrary 4y ago
  I'm not confused why they did what they did. I understand the situation they were in. I'm saying they shouldn't have done it, and that there is an obvious conflict of interest when there's a short squeeze on hedge funds going on, and Robin Hood's paying customers are hedge funds. Stock freezes happen. They are, all things considered, fairly routine affairs. This was not a stock freeze - it was a company that got out over its skis, ran out of money, and screwed their users to ~unfuck the situation~ unwind their position.
  - deleted 4y ago
    [deleted]
  - bidirectional 4y ago
    They only did what they were forced to. Making an active choice to arbitrarily restrict selling as well would have been an insane move -- who are they to tell their customers they cannot sell something they own?
    - gruez 4y ago
      >who are they to tell their customers they cannot sell something they own? To be fair exchanges do that all the time (ie. trading halts).
      - deleted 4y ago
        [deleted]
  - geph2021 4y ago
    I wonder if Robinhood could have changed their GME margin requirements? Not sure if that's allowed, but surely that would have allowed them to unwind some (margin call everyone who is leveraged long), and some customers who were willing to put up 100% to cover their GME buys could keep buying.
    - quickthrowman 4y ago
      No, the clearinghouse wasn’t going to change margin requirements, because those exist so transactions are completed………it’s the entire purpose of a clearinghouse. This subject is infuriating to discuss, nobody understands the basics of why it happened!!
    - gruez 4y ago
      As mentioned in my other comment, they can't use customer funds to fund collateral requirements. https://news.ycombinator.com/item?id=31209268 https://news.ycombinator.com/item?id=31209268
  - 4y ago
- kareemsabri 4y ago
  This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have.
  - gruez 4y ago
    > This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. That's basically how the entire financial system works. You're supposed to be able to withdraw deposits as cash, but if everybody does it (from say, an internet meme event), the banks obviously wouldn't be able to "fulfill their obligations [...] to their customers". It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. >Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. I don't get what distinction you're trying to make here? That "money" doesn't mean "collateral"? Those seem fairly interchangeable in this context.
    - adhesive_wombat 4y ago
      > It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. Indeed, that's the whole point of fractional reserve.
  - dragontamer 4y ago
    > Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. Collateral in this case is just a fancy word meaning "money".
- vmception 4y ago
  You're missing the point on behalf of some other people that are missing the point. If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Just freeze the stock, instead of only considering the freezing of the buys as a mere technicality while being pushed towards the convenience of keeping sells open. The point is for them to think of their users and balance decisions with what users would think.
  - dragontamer 4y ago
    > If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Why? Robinhood wanted more GME for themselves so that they can sell it to other customers, who were furiously buying up GME to the point that Robinhood ran out of GME to sell. ------- That's like a Gamestop banning used PS5 during Christmas. Erm... wait, you want to sell me your used PS5 when no one else can get it? Sure, I'll buy it from you (and immediately resell it within 5 minutes). The problem is that there's this *myth*, this *conspiracy* where a cabal of shadowy people were "owned" by the noble Redditors / meme-stonk buyers who saved the world... and people who participated in the myth want to be seen as the "good guys". But in actuality, they're jumping at shadows and inventing boogiemen, and fundamentally misunderstanding the situation. I mean, whatever. Its what people do and it happens all the time. But Imma call people's idiocy out when it happens. For people who actually want to understand the GME event, feel free to read the GME report from the SEC: https://www.sec.gov/page/sec-staff-release-gamestop-report https://www.sec.gov/page/sec-staff-release-gamestop-report And stay away from the meme-stonk myths. Those guys don't know what they're talking about.
    - vmception 4y ago
      Broker level stock halts happen all the time too, it was an option. Robinhood has conflicts of interest that don't require meme stock myths. The collateral requirements was from DTCC which affected many brokers and Robinhood simply got all the attention and is unrelated to Robinhood's conflict of interest, doesnt that prove I'm not subscribing to the conspiracies? The conflict of interest is that Citadel is their primary customer who gets all the trade data from robinhood's user. Citadel infused capital into Melvin which was the main fund Robinhood's users were trying to target because of Melvin's short position in Gamestop. The shadowy cabal conversation never needs to occur. Robinhood reacted to the DTCC collateral requirements, they should have reacted to their users as well, having a little drop of emotional intelligence to say "oh yeah this is reason to do a stock halt" instead of an asymmetric one.
- f-securus 4y ago
  If majority of retail was blocked out of buying during this period, then who was on the other end of the transaction and why do you think they would be buying when retail has the buy button turned off and the stock is 'severely disconnected from reality'? Could Robinhood have disabled margin accounts and only allowed people to purchase with settled cash as a way to keep the margin requirements in check? It seems big money was conspiring against retail and makes it difficult to trust the current opaque system.
  - eftychis 4y ago
    a) "big money" -- (such as retirement accounts or other institutions) -- don't care about "retail." They have to follow certain risk regulations and plans and will follow them, and that's it. Market makers will try to drive ahead of the market in an effort to provide liquidity (and make money to live and prosper in the process). b) Robinhood was "blocked" because it decided to not do any serious risk management. And by blocked we mean it didn't have the cash that the clearinghouse required to service them. c) No the collateral is for the clearance. The margin you refer to is what Robinhood lends you the customer. They are handling (mishandling in the case of Robinhood) their own equivalent side to be able to provide you with those stock trades. What you see as a successful trade is only the execution of the trade -- that is someone has agreed to buy or sell at the price you asked/bid for. Next someone (broker + clearing house) needs to clear (Robinhood fucked up here) and then needs to settle. The clearing house takes the risk in case one of the counterparties falters or becomes insolvent, to ensure transactions do happen. It takes 2 days to trade (execution to settlement) non-options in most systems I am aware of these days. c') Robinhood was just blind sided when its clearinghouse said "Hey, you know you actually just have way more buys that are more volatile than normal to the point of issues at clearing is 1, so increase your collateral." Robinhood said:"No money." Clearinghouse: "No worries, no trades, until you change your risk profile." (Here is a quick link (just googled, couldn't find a better article I like) outlining the process https://thismatter.com/money/stocks/settlement-and-clearing.htm https://thismatter.com/money/stocks/settlement-and-clearing..... P.S. (@Edit): Also the brokers can not legally touch the customers' "hard cash" money and post it to cover their own obligations -- that would be commingling and let us say it is not good. I am not going to even begin imagining the issues, but people continuously get screwed due to commingling of funds.
ar_lan 4y ago
It's bizarre to me how many people really seem to have sided with Robinhood on this and blame the consumer's for being "too dumb to understand the reality of what happened." Situations occur, and usually customers are receptive if they are given heads up and a reason why. But Robinhood just completely subverted their customer's expectations rapidly and unexpectedly. The entire purpose of their app is TO abstract away the complicated world of stock trading - and they failed to live up to that goal during the GME saga. So I don't get why people are going against the customers whose expectations were set by Robinhood and coming to the defense of Robinhood themselves. Robinhood offered a product. They clearly showed they can't deliver on the expectation most consumers desire. People vote with their money, and are leaving Robinhood (I cancelled in favor of Fidelity in February 2021). It's fine, it's how capitalism works.
- WoahNoun 4y ago
  They've been pretty open actually. They did not have enough cash on hand to support the buy volume. They have said this repeatedly. They have also said if incoming bank transfers from retail investors had settled faster they would have had enough cash. The "instant deposit" feature of letting people buy stocks with cash deposits they had only initiated but had not settled meant they didn't have the cash on hand to support more buying.
  - mazlix 4y ago
    January 27th, 2021 Robinhood sent me an email warning that "In an effort to help reduce risk, we've begun implmenting certain restrictions for GME and AMC options trading". They explain some restrictions being made to options. They don't provide any sort of warning that completely removing the ability to buy the underlying stock for all of their users was even a possibility. I think it sshould be part of their fiduciary duty to inform people of the risks of purchasing stocks that they are running out of collateral for.
    - WoahNoun 4y ago
      > inform people of the risks of purchasing stocks that they are running out of collateral People weren't allowed to purchase those stocks so I'm not sure what risks you are talking about. There was no (additional) risk from purchasing from RH versus anywhere else. You could always sell. Not allowing people to buy doesn't have anything to do with fiduciary duty. A broker doesn't have to let you buy whatever you want.
jollybean 4y ago
That's pretty reasonable. Not allowing people 'out' is a pretty extreme measure and could cause serious financial distress. Not allowing people to 'buy'? Then 'buy' somewhere else. Behind the scenes issues aside, it's not an unreasonable policy. Being 'Sold Out' of some hot commodity because of supply chain problems is a thing. You have to go next door to buy that thing. Returns? That's allowed. I don't think they ever should have been in that position but I don't see the policy as deeply unfair.
timdev2 4y ago
I sold GME for a tidy profit on RH while buying was disallowed. Not hypothetically; I really did. Are you saying RH should have forced me to hodl? How would that have been a better customer experience?
- f-securus 4y ago
  In another reality Robinhood did not turn off the buy button and short hedge funds get margin called and the squeeze occurs... allowing you to hit a grand slam as opposed to being happy with your home run.
  - filoleg 4y ago
    No at all how that other reality where they didn't "turn off the buy button" would've worked out. In that other reality you are proposing, Robinhood gets declared insolvent and enters into receivership at the market close. Your entire investment account gets frozen for a year or so, until the insolvency process is finalized, and you can finally get your assets back.
quickthrowman 4y ago
> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. That’s because the clearinghouse margin requirement would be lowered if people sold GME, it wasn’t a nefarious plot to destroy the share price. There was a massive buy side imbalance on GME which required enormous amounts of cash margin at the clearinghouse. Sales of GME would lower the margin required. Do I need to restate that a third time so you understand? Melvin Capital shuttered their fund recently anyways, the apes won.

dragontamer 4y ago

> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a deliberate action that could only have one outcome on the stock price. Because Robinhood didn't have enough margin to keep buying GME. But if you sold GME, that reduced the margin Robinhood had to keep. ------- In other words: Robinhood has no more money to buy GME on behalf of its customers. It could sell however, because selling unwound Robinhood's GME position. Robinhood (and Robinhood's partners) are "on the hook" for all GME for the 2-days in the T-2 transaction period of modern US trading law. Trades take 2 days to take place, so somebody needs to be "the risky bagholder" whenever a stock's price changes dramatically. Robinhood only had enough money to support X amount of buys. When that money ran out, Robinhood was unable to buy, and could only sell GME. Of course, this only happened for 2 days as the stocks / money exchanged hands. But 2 days is apparently an eternity and none of these stock buyers were buying GME for the long term, just for the hype of it all. So it was all over by the time Robinhood was able to buy again.

dangerlibrary 4y ago
I'm not confused why they did what they did. I understand the situation they were in. I'm saying they shouldn't have done it, and that there is an obvious conflict of interest when there's a short squeeze on hedge funds going on, and Robin Hood's paying customers are hedge funds. Stock freezes happen. They are, all things considered, fairly routine affairs. This was not a stock freeze - it was a company that got out over its skis, ran out of money, and screwed their users to ~unfuck the situation~ unwind their position.
- deleted 4y ago
  [deleted]
- bidirectional 4y ago
  They only did what they were forced to. Making an active choice to arbitrarily restrict selling as well would have been an insane move -- who are they to tell their customers they cannot sell something they own?
  - gruez 4y ago
    >who are they to tell their customers they cannot sell something they own? To be fair exchanges do that all the time (ie. trading halts).
    - deleted 4y ago
      [deleted]
- geph2021 4y ago
  I wonder if Robinhood could have changed their GME margin requirements? Not sure if that's allowed, but surely that would have allowed them to unwind some (margin call everyone who is leveraged long), and some customers who were willing to put up 100% to cover their GME buys could keep buying.
  - quickthrowman 4y ago
    No, the clearinghouse wasn’t going to change margin requirements, because those exist so transactions are completed………it’s the entire purpose of a clearinghouse. This subject is infuriating to discuss, nobody understands the basics of why it happened!!
  - gruez 4y ago
    As mentioned in my other comment, they can't use customer funds to fund collateral requirements. https://news.ycombinator.com/item?id=31209268 https://news.ycombinator.com/item?id=31209268
- 4y ago
kareemsabri 4y ago
This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have.
- gruez 4y ago
  > This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. That's basically how the entire financial system works. You're supposed to be able to withdraw deposits as cash, but if everybody does it (from say, an internet meme event), the banks obviously wouldn't be able to "fulfill their obligations [...] to their customers". It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. >Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. I don't get what distinction you're trying to make here? That "money" doesn't mean "collateral"? Those seem fairly interchangeable in this context.
  - adhesive_wombat 4y ago
    > It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. Indeed, that's the whole point of fractional reserve.
- dragontamer 4y ago
  > Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. Collateral in this case is just a fancy word meaning "money".
vmception 4y ago
You're missing the point on behalf of some other people that are missing the point. If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Just freeze the stock, instead of only considering the freezing of the buys as a mere technicality while being pushed towards the convenience of keeping sells open. The point is for them to think of their users and balance decisions with what users would think.
- dragontamer 4y ago
  > If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Why? Robinhood wanted more GME for themselves so that they can sell it to other customers, who were furiously buying up GME to the point that Robinhood ran out of GME to sell. ------- That's like a Gamestop banning used PS5 during Christmas. Erm... wait, you want to sell me your used PS5 when no one else can get it? Sure, I'll buy it from you (and immediately resell it within 5 minutes). The problem is that there's this *myth*, this *conspiracy* where a cabal of shadowy people were "owned" by the noble Redditors / meme-stonk buyers who saved the world... and people who participated in the myth want to be seen as the "good guys". But in actuality, they're jumping at shadows and inventing boogiemen, and fundamentally misunderstanding the situation. I mean, whatever. Its what people do and it happens all the time. But Imma call people's idiocy out when it happens. For people who actually want to understand the GME event, feel free to read the GME report from the SEC: https://www.sec.gov/page/sec-staff-release-gamestop-report https://www.sec.gov/page/sec-staff-release-gamestop-report And stay away from the meme-stonk myths. Those guys don't know what they're talking about.
  - vmception 4y ago
    Broker level stock halts happen all the time too, it was an option. Robinhood has conflicts of interest that don't require meme stock myths. The collateral requirements was from DTCC which affected many brokers and Robinhood simply got all the attention and is unrelated to Robinhood's conflict of interest, doesnt that prove I'm not subscribing to the conspiracies? The conflict of interest is that Citadel is their primary customer who gets all the trade data from robinhood's user. Citadel infused capital into Melvin which was the main fund Robinhood's users were trying to target because of Melvin's short position in Gamestop. The shadowy cabal conversation never needs to occur. Robinhood reacted to the DTCC collateral requirements, they should have reacted to their users as well, having a little drop of emotional intelligence to say "oh yeah this is reason to do a stock halt" instead of an asymmetric one.
f-securus 4y ago
If majority of retail was blocked out of buying during this period, then who was on the other end of the transaction and why do you think they would be buying when retail has the buy button turned off and the stock is 'severely disconnected from reality'? Could Robinhood have disabled margin accounts and only allowed people to purchase with settled cash as a way to keep the margin requirements in check? It seems big money was conspiring against retail and makes it difficult to trust the current opaque system.
- eftychis 4y ago
  a) "big money" -- (such as retirement accounts or other institutions) -- don't care about "retail." They have to follow certain risk regulations and plans and will follow them, and that's it. Market makers will try to drive ahead of the market in an effort to provide liquidity (and make money to live and prosper in the process). b) Robinhood was "blocked" because it decided to not do any serious risk management. And by blocked we mean it didn't have the cash that the clearinghouse required to service them. c) No the collateral is for the clearance. The margin you refer to is what Robinhood lends you the customer. They are handling (mishandling in the case of Robinhood) their own equivalent side to be able to provide you with those stock trades. What you see as a successful trade is only the execution of the trade -- that is someone has agreed to buy or sell at the price you asked/bid for. Next someone (broker + clearing house) needs to clear (Robinhood fucked up here) and then needs to settle. The clearing house takes the risk in case one of the counterparties falters or becomes insolvent, to ensure transactions do happen. It takes 2 days to trade (execution to settlement) non-options in most systems I am aware of these days. c') Robinhood was just blind sided when its clearinghouse said "Hey, you know you actually just have way more buys that are more volatile than normal to the point of issues at clearing is 1, so increase your collateral." Robinhood said:"No money." Clearinghouse: "No worries, no trades, until you change your risk profile." (Here is a quick link (just googled, couldn't find a better article I like) outlining the process https://thismatter.com/money/stocks/settlement-and-clearing.htm https://thismatter.com/money/stocks/settlement-and-clearing..... P.S. (@Edit): Also the brokers can not legally touch the customers' "hard cash" money and post it to cover their own obligations -- that would be commingling and let us say it is not good. I am not going to even begin imagining the issues, but people continuously get screwed due to commingling of funds.

ar_lan 4y ago

It's bizarre to me how many people really seem to have sided with Robinhood on this and blame the consumer's for being "too dumb to understand the reality of what happened." Situations occur, and usually customers are receptive if they are given heads up and a reason why. But Robinhood just completely subverted their customer's expectations rapidly and unexpectedly. The entire purpose of their app is TO abstract away the complicated world of stock trading - and they failed to live up to that goal during the GME saga. So I don't get why people are going against the customers whose expectations were set by Robinhood and coming to the defense of Robinhood themselves. Robinhood offered a product. They clearly showed they can't deliver on the expectation most consumers desire. People vote with their money, and are leaving Robinhood (I cancelled in favor of Fidelity in February 2021). It's fine, it's how capitalism works.

WoahNoun 4y ago
They've been pretty open actually. They did not have enough cash on hand to support the buy volume. They have said this repeatedly. They have also said if incoming bank transfers from retail investors had settled faster they would have had enough cash. The "instant deposit" feature of letting people buy stocks with cash deposits they had only initiated but had not settled meant they didn't have the cash on hand to support more buying.
- mazlix 4y ago
  January 27th, 2021 Robinhood sent me an email warning that "In an effort to help reduce risk, we've begun implmenting certain restrictions for GME and AMC options trading". They explain some restrictions being made to options. They don't provide any sort of warning that completely removing the ability to buy the underlying stock for all of their users was even a possibility. I think it sshould be part of their fiduciary duty to inform people of the risks of purchasing stocks that they are running out of collateral for.
  - WoahNoun 4y ago
    > inform people of the risks of purchasing stocks that they are running out of collateral People weren't allowed to purchase those stocks so I'm not sure what risks you are talking about. There was no (additional) risk from purchasing from RH versus anywhere else. You could always sell. Not allowing people to buy doesn't have anything to do with fiduciary duty. A broker doesn't have to let you buy whatever you want.

jollybean 4y ago

That's pretty reasonable. Not allowing people 'out' is a pretty extreme measure and could cause serious financial distress. Not allowing people to 'buy'? Then 'buy' somewhere else. Behind the scenes issues aside, it's not an unreasonable policy. Being 'Sold Out' of some hot commodity because of supply chain problems is a thing. You have to go next door to buy that thing. Returns? That's allowed. I don't think they ever should have been in that position but I don't see the policy as deeply unfair.

timdev2 4y ago

I sold GME for a tidy profit on RH while buying was disallowed. Not hypothetically; I really did. Are you saying RH should have forced me to hodl? How would that have been a better customer experience?

f-securus 4y ago
In another reality Robinhood did not turn off the buy button and short hedge funds get margin called and the squeeze occurs... allowing you to hit a grand slam as opposed to being happy with your home run.
- filoleg 4y ago
  No at all how that other reality where they didn't "turn off the buy button" would've worked out. In that other reality you are proposing, Robinhood gets declared insolvent and enters into receivership at the market close. Your entire investment account gets frozen for a year or so, until the insolvency process is finalized, and you can finally get your assets back.

quickthrowman 4y ago

> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. That’s because the clearinghouse margin requirement would be lowered if people sold GME, it wasn’t a nefarious plot to destroy the share price. There was a massive buy side imbalance on GME which required enormous amounts of cash margin at the clearinghouse. Sales of GME would lower the margin required. Do I need to restate that a third time so you understand? Melvin Capital shuttered their fund recently anyways, the apes won.