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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 confl

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
dragontamer 4y ago
> I'm saying they shouldn't have done it They had no choice. They literally couldn't obtain any more GME stock. You cannot squeeze blood out of a stone. What do you want Robinhood to do? The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. They would allow "selling", because Robinhood can then obtain that customer's GME stock, and then give it to another customer almost immediately. ------------ All of this margins and stuff is probably just overcomplicating things. You're basically getting mad at toy stores for running out of Furbies, PS5 (or whatever fad-toy is available) during Christmas. Sold-out means sold-out, they can't sell you anymore. But they were willing to accept sell orders (aka: buy GME stocks from others), because that would replenish their stocks of GME to sell to other customers. If some PS5 scalper came up to (insert store here) saying "I wanna sell my PS5 at market prices", of course the toy-store would buy the PS5 (and immediately sell it to the next customer for a higher price).
- BigBubbleButt 4y ago
  > The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. This is a poor analogy. So long as there is a large enough float, which is a requirement to be listed on some exchanges, there should always be stock to buy and sell. Don't compare it to something else that's commonplace and misleading. I am aware of the margin requirements and what happened with DTCC and am purposefully avoiding that more complicated subject only to point out how much I dislike your analogy.
  - Denvercoder9 4y ago
    It's not that bad of an analogy. When a toy store runs out of Furbies, that doesn't mean there's no Furbies available on the world market anymore. It just means that at that specific toy store you can't get any Furbies anymore. When they get resupplied (posted additional collateral, in the case of Robin Hood), you can buy from them again.
    - 4y ago
Denvercoder9 4y ago
There's a big difference between a stock freeze imposed by an exchange, and a broker prohibiting its clients from trading a given stock. If you're actively preventing your clients from selling the stock they own, that costs them actual money if the stock goes down and can very well end in expensive lawsuits. If you prevent them from buying more stock, they only lose the opportunity cost, which is generally much harder to recover by legal means.
- f-securus 4y ago
  If a broker that handles a very large portion of retail trades suddenly blocks purchasing a security that retail trading has driven the price up then it stops retail pressure and the stock price will obviously drop.... you could say Robinhood cost retail money by removing the upward pressure on the stock. The SEC report on the incident mentions the price rise was mostly due to retail FOMO, and not the suspected short squeeze that got the early folks attention. A laymen would look at what Robinhood did and think Robinhood cut the fuse to the short squeeze bomb.
  - Denvercoder9 4y ago
    The problem with this analysis is that Robinhood didn't choose to block buy orders, they were forced to because they were no longer able to fulfill them. You can argue about whether Robinhood should've been better prepared for the volatility that arose (and that could be an interesting conversation by itself), but they weren't. GP claims "they shouldn't have done it", but continuing wasn't an option. The only other choice they had was to suspend trading in GME all together (both buy and sell orders), but I don't see how that wasn't strictly worse for them and their clients.
    - chii 4y ago
      it might have made robinhood look better to uninformed retail traders if they disabled both the sell button as well as the buy button.
      - 4y ago
WoahNoun 4y ago
Not doing it would have resulted in Robinhood being declared insolvent and entered into receivership at the close of trading day. All investment accounts would have been frozen for at least a year as the insolvency is unwound. Financial firms (including brokerages) don't go through "bankruptcy" like other corporations. They are liquidated during the nightly clearing process. The SEC report says the short squeeze drove the initial price action, but retail attempting to chase the short squeeze drove the majority of the price increase when RH was shutting down trading. (Graph on page 28 or 29 of the SEC report shows this).
mumblemumble 4y ago
Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? Temporarily halting all trading is something an exchange can reasonably do, sure. But for an individual retail brokerage to do it (instead of only halting buying) seems like something that straight-up shouldn't be legal. Basically because of the balance of upside and downside -- If I can't buy into a stock that's suddenly spiked, at best I'm experiencing FOMO and at worst I'm missing out on some potential profits. If I can't liquidate my position on a stock that's suddenly spiked, then at best I'm missing a chance to realize my gains and at worst I'm being forced to sit there and lose money. (I realize this is only considering long buying. TBH, I can't really think up a story for retail short sellers more compassionate than "caveat vendor." Nor am I sure why I should try to.)
- filoleg 4y ago
  > Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? You aren't missing anything. This is fairly obvious to anyone who understands how exchanges/brokers operate even on a basic level. The bottom line of it is, disabling buying was a hard necessity to avoid a complete disaster for everyone involved (including customers). Disabling selling wasn't a necessity in any way whatsoever. It wouldn't have solved any problem at all, and would only add an extra problem for customers who wish to exit their positions.
  - mumblemumble 4y ago
    OK, thanks for the validation. I think the next step, then, is to observe that I don't see how this can be characterized as a case of Robinhood getting out over their skis. Gamestonk looks for all the world to me like it was a black swan event that nobody could have anticipated. And the amount of reserve money Robinhood's clearer required is, realistically, set by the clearer. I suppose technically Robinhood could have held more, but that seems like the kind of thing that no consortium of mere humans would ever actually do, right? Just something a monday morning quarterback might say they should have done.

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

dragontamer 4y ago

> I'm saying they shouldn't have done it They had no choice. They literally couldn't obtain any more GME stock. You cannot squeeze blood out of a stone. What do you want Robinhood to do? The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. They would allow "selling", because Robinhood can then obtain that customer's GME stock, and then give it to another customer almost immediately. ------------ All of this margins and stuff is probably just overcomplicating things. You're basically getting mad at toy stores for running out of Furbies, PS5 (or whatever fad-toy is available) during Christmas. Sold-out means sold-out, they can't sell you anymore. But they were willing to accept sell orders (aka: buy GME stocks from others), because that would replenish their stocks of GME to sell to other customers. If some PS5 scalper came up to (insert store here) saying "I wanna sell my PS5 at market prices", of course the toy-store would buy the PS5 (and immediately sell it to the next customer for a higher price).

BigBubbleButt 4y ago
> The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. This is a poor analogy. So long as there is a large enough float, which is a requirement to be listed on some exchanges, there should always be stock to buy and sell. Don't compare it to something else that's commonplace and misleading. I am aware of the margin requirements and what happened with DTCC and am purposefully avoiding that more complicated subject only to point out how much I dislike your analogy.
- Denvercoder9 4y ago
  It's not that bad of an analogy. When a toy store runs out of Furbies, that doesn't mean there's no Furbies available on the world market anymore. It just means that at that specific toy store you can't get any Furbies anymore. When they get resupplied (posted additional collateral, in the case of Robin Hood), you can buy from them again.
  - 4y ago

Denvercoder9 4y ago

There's a big difference between a stock freeze imposed by an exchange, and a broker prohibiting its clients from trading a given stock. If you're actively preventing your clients from selling the stock they own, that costs them actual money if the stock goes down and can very well end in expensive lawsuits. If you prevent them from buying more stock, they only lose the opportunity cost, which is generally much harder to recover by legal means.

f-securus 4y ago
If a broker that handles a very large portion of retail trades suddenly blocks purchasing a security that retail trading has driven the price up then it stops retail pressure and the stock price will obviously drop.... you could say Robinhood cost retail money by removing the upward pressure on the stock. The SEC report on the incident mentions the price rise was mostly due to retail FOMO, and not the suspected short squeeze that got the early folks attention. A laymen would look at what Robinhood did and think Robinhood cut the fuse to the short squeeze bomb.
- Denvercoder9 4y ago
  The problem with this analysis is that Robinhood didn't choose to block buy orders, they were forced to because they were no longer able to fulfill them. You can argue about whether Robinhood should've been better prepared for the volatility that arose (and that could be an interesting conversation by itself), but they weren't. GP claims "they shouldn't have done it", but continuing wasn't an option. The only other choice they had was to suspend trading in GME all together (both buy and sell orders), but I don't see how that wasn't strictly worse for them and their clients.
  - chii 4y ago
    it might have made robinhood look better to uninformed retail traders if they disabled both the sell button as well as the buy button.
    - 4y ago

WoahNoun 4y ago

Not doing it would have resulted in Robinhood being declared insolvent and entered into receivership at the close of trading day. All investment accounts would have been frozen for at least a year as the insolvency is unwound. Financial firms (including brokerages) don't go through "bankruptcy" like other corporations. They are liquidated during the nightly clearing process. The SEC report says the short squeeze drove the initial price action, but retail attempting to chase the short squeeze drove the majority of the price increase when RH was shutting down trading. (Graph on page 28 or 29 of the SEC report shows this).

mumblemumble 4y ago

Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? Temporarily halting all trading is something an exchange can reasonably do, sure. But for an individual retail brokerage to do it (instead of only halting buying) seems like something that straight-up shouldn't be legal. Basically because of the balance of upside and downside -- If I can't buy into a stock that's suddenly spiked, at best I'm experiencing FOMO and at worst I'm missing out on some potential profits. If I can't liquidate my position on a stock that's suddenly spiked, then at best I'm missing a chance to realize my gains and at worst I'm being forced to sit there and lose money. (I realize this is only considering long buying. TBH, I can't really think up a story for retail short sellers more compassionate than "caveat vendor." Nor am I sure why I should try to.)

filoleg 4y ago
> Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? You aren't missing anything. This is fairly obvious to anyone who understands how exchanges/brokers operate even on a basic level. The bottom line of it is, disabling buying was a hard necessity to avoid a complete disaster for everyone involved (including customers). Disabling selling wasn't a necessity in any way whatsoever. It wouldn't have solved any problem at all, and would only add an extra problem for customers who wish to exit their positions.
- mumblemumble 4y ago
  OK, thanks for the validation. I think the next step, then, is to observe that I don't see how this can be characterized as a case of Robinhood getting out over their skis. Gamestonk looks for all the world to me like it was a black swan event that nobody could have anticipated. And the amount of reserve money Robinhood's clearer required is, realistically, set by the clearer. I suppose technically Robinhood could have held more, but that seems like the kind of thing that no consortium of mere humans would ever actually do, right? Just something a monday morning quarterback might say they should have done.