Disgusting reminder of the failures of nonprofit stewardship and government overreach. That foundation should never have been in peril, and the blatant overreach "for the public good" of a citizen's private property is terrifying.
Why would "anti-family" laws make sense? People who come from stable families are statistically much much more likely to be happy, successful and contribute to society.
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!
>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.
Rubbish. TD Ameritrade, WeBull and half a dozen other brokers with gigantic balance sheets also suspended trading. This was a rug pull executed by Robinhood on behalf of it's clients.
1) The NSCC (DTCC) confirmed that all parties met their depository requirements.
Even if they had not met the requirements (again, which they did), a depository requirement change is not an extenuating circumstance in the least. That is part and parcel of this business.
Yes: Robinhood runs a casino dressed up as a brokerage, and packaged their offering as if settlement was instantaneous, rather than an efficient fiction built out of loans extended to everyone involved in settling a stock transaction. Brokerages put up substantial capital to insure themselves from each other based on how their customers are extending themselves; there are published formulas for how these capital calls work. Robinhood did their best to hide this reality from their customers, and got caught out.
Nobody should be defending Robinhood here. People are just wrong about what Robinhood did wrong.
There are actually supporting claims for this theory from investors on Reddit who transferred "meme stocks" out of Robinhood and noticed wildly incorrect cost basis reports on fractional shares, with some screenshots showing values into the thousands of dollars per share. These posts could be found on subreddits such as Wall Street Bets, Superstonk, etc., for example: https://www.reddit.com/r/Superstonk/comments/ngs81d/just_got...
"This theory" is the theory that "Robinhood runs a casino dressed up as a brokerage, and packaged their offering as if settlement was instantaneous, rather than an efficient fiction built out of loans extended to everyone involved in settling a stock transaction."
> 1) The NSCC (DTCC) confirmed that all parties met their depository requirements.
...the morning of. The deposit requirements will go up as customers place more trades.
>a depository requirement change is not an extenuating circumstance in the least. That is part and parcel of this business.
If it's a 99 percentile event that nobody could have saw coming happened, why shouldn't it be an extenuating circumstance? Keep in mind, they're a discount brokerage. It's like getting mad that your vps from a lowendbox provider had a few days of downtime because their raid6 had 2 disk failures.
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-Febru...
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.
> 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.
>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"?
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!
It's not plausible! Among many other problems, it effectively asserts that Griffin somehow muscled Charles Schwab at the same time as Robinhood. Citadel is a big company, but it's not that big. It's just a silly claim. People know one thing about this whole situation --- that Robinhood uses Citadel for execution --- and incessantly try to derive every other thing from first principles based on it.
- Citadel has $38 billion of assets under management as of March 2021
- On January 25, it was announced that Griffin's Citadel would invest $2 billion into Melvin Capital, which had suffered losses of more than 30% on account of its short positions, particularly on GameStop
- On January 28, Robinhood, an electronic trading platform favored by many traders involved in buying GameStop stock and options, abruptly announced that it would halt all purchases of GameStop securities except to cover shorts and would only allow these securities to be sold if already held (but not sold short); the price of GME stock declined steeply shortly thereafter.
It is entirely silly, as, for what it's worth, is Warren's letter. Virtu handles a comparable amount of stock trading in the US; maybe you think they can strong-arm Schwab, too? You can pretty easily pull up a list of firms ranked by their AUM to put that scary-sounding "$38 billion" in perspective, too.
You keep saying it's "silly" and provide no specifics (the one you did was incorrect) and keep saying things like "they aren't even that large" without provide comparable numbers.
> maybe you think they can strong-arm Schwab, too?
I never said that, did I? I think its well known that PFOF is a controversial business practice because it can create conflicts of interest. That's not a new thought.
So are S&P/Moody ratings yet those got us in trouble in 2008. Just because something is a universal practice in the financial industry doesn't absolve it from conflicts / potential legalities.
What's the point of this "fun fact"? I guess the implication you're trying to make is that PFOF is bad by association with maddoff. It's easy to see the flaw with this logic, eg. the autobahn was "pioneered" by hitler, therefore it's bad.
> I guess the implication you're trying to make is that PFOF is bad by association with maddoff.
Read the full article and maybe you'll understand better? If you're lazy here ya go:
> Call it shabby if you want. Payment for order flow was legal, and Madoff fought to keep it so. Under pressure from the SEC, the NASD, the securities industry's self-regulatory body, assembled a panel to study the issue in 1990. At the time, payment for order flow was highly controversial, and opposition was intense.
I don't understand why you guys are so hand-wavy about the the idea that PFOF introduces serious conflicts of interest, when it's been debated for decades (with serious thought, not just some random internet trolls). A bunch of reddit/RH users talking about the issues with PFOF isn't new - that's my point. You seem to suggest that just because they are the ones bringing light to it that it shouldn't be taken seriously. Weird.
>Read the full article and maybe you'll understand better? If you're lazy here ya go:
Well you just casually linked a 11k word article with little context. I'm not going to read that and then try to figure out whether that article was supposed to serve as an addition to your original argument, or merely a source to back up your claim about PFOF being pioneered by maddoff.
>At the time, payment for order flow was highly controversial, and opposition was intense.
In other words, PFOF is bad because Madoff fought for it and it was controversial? That's still guilt by association, and a terrible argument.
>I don't understand why you guys are so hand-wavy about the the idea that PFOF introduces serious conflicts of interest
Because they're already obligated by law to provide best execution. They're also obligated to provide reports on the quality of execution.
>You seem to suggest that just because they are the ones bringing light to it that it shouldn't be taken seriously. Weird.
You started off by insinuating that robinhood took orders from melvin/citadel to restrict trades. Insofar as that's concerned, it shouldn't be taken seriously because there's scarce evidence.
> In other words, PFOF is bad because Madoff fought for it and it was controversial? That's still guilt by association, and a terrible argument.
I guess the statement "At the time, payment for order flow was highly controversial, and opposition was intense." doesn't mean the same thing to you as it does to me. In other words it didn't say it was controversial because it was Madoff, it was controversial because of the nature of incentives. If you're not going to read the article or understanding why PFOF is controversial (sans Maddoff or Warren's involvement) then it's not worth discussing anything here. Thanks.
> Because they're already obligated by law to provide best execution. They're also obligated to provide reports on the quality of execution.
You mean the same law that...you guessed it Robinhood violated?!
I’ll note Elizabeth Warren has made it a particular point of her platform to beat on Wall Street. I largely don’t mind cause someone ought to. But she is far from an unbiased source.
> it effectively asserts that Griffin somehow muscled Charles Schwab at the same time as Robinhood
I didn't assert that. Any brokerage that uses a provider for settlement was taking on additional untold risk (including Schwab). Schwab, in theory, has enough assets to cover something of that size of trading GME introduced but their clientbase isn't the same as RH, so the reputational risk was much lower. It was a precautionary move, not a "our company might go under and we're gonna piss off our key partners" type of move.
See my other note - you're wrong about the nature of restrictions and level of impact on Schwab vs RH (and other brokerages for that matter).
I think you need to clean up your vocabulary. For instance Citadel doesn’t settle Robinhood trades. Further during this instance Robinhood cleared for themselves.
Providing payment for order flow neither means you are the settler or the clearer.
Effectively every entity that trades securities in the US has to be either a client of a member or a member of DTCC.
Nice try, but Citadel is the largest market maker and if it were an exchange (ostensibly, it might as well be one!) then it would be almost as large as the CBOE!
You can just look up the relative sizes of those firms, you know. It's funny that you came up with CBOE as your reference, because you can look up how big CBOE is, too.
He’s trying to say that cboe is a particularly funny reference as they process minuscule equity trades. Which makes sense given they are an options exchange…
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.
GoldenEar has a very nice passive soundbar that I recommend if you don't have the room or a high WAF criteria for separates. Pair it with some solid in ceiling speakers and you'd be surprised how well it performs.
First time might have been retail traders but this is all about big whales. Shorts are pinned - all shorts must cover. Writing this off as a retail pump and dump is ignorance.
