Analysis: Robinhood protected from lawsuits by user agreement, Congress(reuters.com)
reuters.com
Analysis: Robinhood protected from lawsuits by user agreement, Congress
https://www.reuters.com/article/us-retail-trading-robinhood-liability-an-idUSKBN29Z0HI
284 comments
Robinhood's vulnerability is their forced arbitration clause in the ToS. Similar to Doordash: https://www.vox.com/2020/2/12/21133486/doordash-workers-10-m...
If I read Robinhood's ToS correctly, you agree to not arbitrate any claim you bring up in a class action lawsuit.
That's actually the problem. Each separate arbitration costs them a bunch of cash. If you run a startup in CA, you might want to look at this language because it could get you in trouble. A class action would probably be cheaper.
And if there is something their current user base is good at, it's coordinated mass action.
So if this is possible, I expect tens of thousands of arbitration cases to be filed by Monday.
So if this is possible, I expect tens of thousands of arbitration cases to be filed by Monday.
Who is "you" here? The lead plaintiff is the only one taking it to court and everyone else has the option to opt out if they so desire.
The DoorDash plaintiffs had valid wage claims. Here, according to Reuters' analysis of the agreeement^1, RobinHood plaintiffs do not have a valid contract claim. There is no breach of contract because the agreement specifically allows for RH to silently refuse to execute orders. What can RH customers sue RH for? If there is no valid claim they can make, then there's no possibility of arbitration.
1. https://web.archive.org/web/20200217224304/https://cdn.robin...
1. https://web.archive.org/web/20200217224304/https://cdn.robin...
It’s currently being widely reported that RH actively closed users’ positions without their permission and refused to let them cancel the trades. While I can’t personally vouch for this being true, if it is, I would expect that’s a little different from “refusal to execute orders.” (As always, take these anecdotes with a grain of salt: even if widely reported, it could very well be untrue.)
Are they allowed to refuse to execute one side of the trade while executing the other side?
I am cautiously optimistic that this issue (which seems to have drawn “outrage” from both sides of the political spectrum) will spur some change with respect to contracts of adhesion that force arbitration and prohibit class action suits. It’s nearly impossible to hold a corporation accountable for wide-spread anticonsumer behavior in any meaningful way so long as they can tuck those two paragraphs into a massive contract most people don’t read and even fewer will understand.
On the arbitration front, check out the situation with IndieGoGo and now Patreon. A large number of people acting in concert can fight back against them without going to a class action lawsuit (which are banned anyway). A few years back, the MO for companies was to require arbitration, not participate, and then let it linger forever. California changed the law recently (2019?) where if the company doesn't respond, they "lose" according to JAMS rules.
* I participated in the IndieGoGo arbitration process. Our fee was $250 while theirs was uncapped with most (public) estimates being in the $10-12k range. With a few hundred people, it starts turning into real money for them.
* I participated in the IndieGoGo arbitration process. Our fee was $250 while theirs was uncapped with most (public) estimates being in the $10-12k range. With a few hundred people, it starts turning into real money for them.
> where if the company doesn't respond, they "lose"
Ah, that sounds like something that should go nation-wide.
Ah, that sounds like something that should go nation-wide.
Ha, I was wondering why there was so much California hate from businesses. This explains some of it.
IME it's more stuff like the $800/yr franchise tax.
You can not overwrite a law by making anybody signup user agreement.
This was clearly a stock manipulation played in our faces, no need o prove anything. Only left is to see if the justice exist in EEUU.
Yes, and the manipulation doesn't only affect Robinhood customers.
This. It didn't just impact RH users, it impacted the stock price as a whole. Anybody who was holding the stock should be able to join the class action.
Whoa.. if that logic holds, it’ll be game over for almost all brokers who stopped trading.
This is not a “user-based” restriction (which I guess is what the law intended to mean) but a wholesale restriction without per-customer reasoning, without notice and without equivalent counterpart (they did not block selling)... At least it is worth looking into.
"It will be hard to prove users suffered as a result of Robinhood’s measures because GameStop and other stocks covered by the curbs fell sharply on Thursday after the restrictions were announced, said James Cox, a professor at Duke Law School."
Wait, what? Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users? This is absolute madness.
Wait, what? Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users? This is absolute madness.
> Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users?
Very probably. The general principle of Article III jurisprudence is that you have to demonstrate concrete, particularized harm to bring a case, not generalized, theoretical harm.
If your allegation is that your harm arises from "I could have made a killing if I bought and sold the stock at appropriate times," well that is theoretical harm (especially when you undercut buy alleging that you could have done so on other platforms). You'd probably have to allege that you attempted to buy (alternatively, sell) the stock and Robinhood prevented you from doing so, but the fact that you signed a contract saying that you acknowledge that Robinhood can prevent you from being certain stocks is going to be a challenging hurdle to overcome.
Very probably. The general principle of Article III jurisprudence is that you have to demonstrate concrete, particularized harm to bring a case, not generalized, theoretical harm.
If your allegation is that your harm arises from "I could have made a killing if I bought and sold the stock at appropriate times," well that is theoretical harm (especially when you undercut buy alleging that you could have done so on other platforms). You'd probably have to allege that you attempted to buy (alternatively, sell) the stock and Robinhood prevented you from doing so, but the fact that you signed a contract saying that you acknowledge that Robinhood can prevent you from being certain stocks is going to be a challenging hurdle to overcome.
I know nothing, so here's a question: instead of framing it like the concrete harm was lack of profit (which is theoretical), could they frame it as the concrete harm being that robinhood turned the situation from potentially profitable to no chance of profit?
Like if I'm fishing, I might not catch a fish that day, but if you collapse the pier I'm fishing from then you've concretely caused particular harm to my chances of catching a fish?
Like if I'm fishing, I might not catch a fish that day, but if you collapse the pier I'm fishing from then you've concretely caused particular harm to my chances of catching a fish?
I am not a lawyer, and so I generally only know what law I find out from reading cases that interest me. And that means that while I do know several general legal principles, I am generally ignorant on how those legal principles actually get applied in boundary cases.
Answering this sort of question likely requires digging through cases at the district and circuit court level to find people who made this kind of argument, and seeing if the court bought it or not. I'm not paid to do that, and the people who are are paid big bucks to do so.
But my suspicion is that you have to draw a pretty strong link between the actions of the defendant and your losses, to the point that you really no had other option than to eat the losses. In the case of the pier collapse, you might be able to swing that if there were nowhere else you could fish from. But in the case of Robinhood, I'd be surprised if you could sustain that argument, especially because you've signed this pesky contract.
Answering this sort of question likely requires digging through cases at the district and circuit court level to find people who made this kind of argument, and seeing if the court bought it or not. I'm not paid to do that, and the people who are are paid big bucks to do so.
But my suspicion is that you have to draw a pretty strong link between the actions of the defendant and your losses, to the point that you really no had other option than to eat the losses. In the case of the pier collapse, you might be able to swing that if there were nowhere else you could fish from. But in the case of Robinhood, I'd be surprised if you could sustain that argument, especially because you've signed this pesky contract.
The harm is more particularized for those whose stock was auto-sold at the dip for a margin call because they had bought the stock in an instant account.
There are definitely same claims for harm that are stronger than others. Whether any of the 6 (!) class action suits currently pending actually claim that harm is a different matter.
Of the stuff I see on court listener:
* 3 don't have documents available (and I'm not going to bother signing up for PACER just to find out)
* 1 has a claim predicated on "I could have bought or shorted GME" (yeah, not gonna fly)
* 1 has a claim predicated on "the value of GME stock fell, causing me loss" (doesn't mention if the stock was actually sold, so it's purely paper loss, so really not gonna fly)
* 1 has a claim predicated on "I tried to buy, but couldn't" (best chance of succeeding, but I think they're still screwed anyways)
Of the stuff I see on court listener:
* 3 don't have documents available (and I'm not going to bother signing up for PACER just to find out)
* 1 has a claim predicated on "I could have bought or shorted GME" (yeah, not gonna fly)
* 1 has a claim predicated on "the value of GME stock fell, causing me loss" (doesn't mention if the stock was actually sold, so it's purely paper loss, so really not gonna fly)
* 1 has a claim predicated on "I tried to buy, but couldn't" (best chance of succeeding, but I think they're still screwed anyways)
You should sign up for PACER. It's easy (although the web interface is horrible) and costs basically nothing at the scale you'd be using it at. It's one of those things you won't use often but you'll be happy you set it up, like, a couple times a year.
Most of the cases I'm interested in, someone has already signed up for PACER and added them to courtlistener by the time I get to it. Or it's a SCOTUS case and the entire docket is accessible for free on supremecourt.gov :-)
It was the same for me, but I like it when I can grab something that hasn't hit Courtlistener yet for, like, 50 cents. :)
It's a good message board power-up, I guess.
It's a good message board power-up, I guess.
And install/use RECAP so you can make PACER use more free.
https://free.law/recap
https://free.law/recap
Is there proof of this? This gets repeated a lot and the best "proof" I've seen was a wsb post claiming they got sold "without [their] permission", but stopped short of saying whether they were using margin or not.
One piece of the "Robinhood Abstraction" that is popping up a lot right now is that the fact that a large majority would have been using margin, but not known it.
Much of the nice and fast experience that Robinhood offers ("Just signed up? You can start trading!", "Initiated a transfer? Start trading now!", "Just sold something? Rebuy something else immediately!") are all powered by the fact that these are all technical using margin.
Much of the nice and fast experience that Robinhood offers ("Just signed up? You can start trading!", "Initiated a transfer? Start trading now!", "Just sold something? Rebuy something else immediately!") are all powered by the fact that these are all technical using margin.
If you use the "instant deposit" feature (its ON by default) on Robinhood, you are using margin. Its one of the weird things people never really though about.
Loss of an unlawful gain wouldn't be an actionable harm in any case.
"I intended to buy at a higher price in order to manipulate the price of an asset well above its value, and was harmed by being delayed until a later time where I could buy it at a lower price" -- not going to fly.
If RH is inadequately disclosing the risks of margin trading then some of their customers that had positions closed due to margin requirements might have cases.
"I intended to buy at a higher price in order to manipulate the price of an asset well above its value, and was harmed by being delayed until a later time where I could buy it at a lower price" -- not going to fly.
If RH is inadequately disclosing the risks of margin trading then some of their customers that had positions closed due to margin requirements might have cases.
The vast majority of GME buyers could never be considered guilty of unlawful market manipulation. "I intended to buy the stock because I thought it would go up" is a pretty good reason. (OTOH I don't really believe such investors have a strong case against RH).
You miss the point of my comment, I think.
"I was harmed because I was delayed from buying at a higher price and instead could only buy at a lower price later!" -- only being able to buy at a lower price later is only a "harm" in the sense that it prevented price manipulation.
"I was harmed because I was delayed from buying at a higher price and instead could only buy at a lower price later!" -- only being able to buy at a lower price later is only a "harm" in the sense that it prevented price manipulation.
In this case the concrete harm is easy to show as someone could just show the number of shares their account could have covered purchase at $200/share when buys were blocked. And multiply that by the gain they would have made selling Friday.
This is an easily quantifiable and concrete claim that might be brought up by every Robinhood user with cash in their account.
They would be safer if the stock had continued to drop.
This is an easily quantifiable and concrete claim that might be brought up by every Robinhood user with cash in their account.
They would be safer if the stock had continued to drop.
Short Ladder attack during low volume caused by inability to buy.
Probably because those are theoretical losses. The previous paragraph is also relevant:
>However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts.
As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades. In that case I don't see how it's any different than a service outage causing you to lose money, but you don't have a SLA in place.
>However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts.
As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades. In that case I don't see how it's any different than a service outage causing you to lose money, but you don't have a SLA in place.
I don't understand the "deposit needed" aspect. I can't buy 2 shares of AMC at 12 dollars each but can buy 200 shares of TSLA at 800 each? How does that work?
Favor certain investors - like the ones shorting?
This isn't going to be an obvious clear cut case, and there will be plenty of gaslighting as part of the TENS of billions of $ on the line.
This isn't going to be an obvious clear cut case, and there will be plenty of gaslighting as part of the TENS of billions of $ on the line.
Just because their decision favored another party doesn't mean it was malicious and they would be liable. If at&t had to shut down their network for 2 hours because of a botched firmware update, that would heavily favor the hedge funds (who probably have redundant connections), but that doesn't mean you can go after them for not being able to sell your GME stocks.
The communications records of everyone involved will paint that picture for us, as to whether favours were played or not.
Assuming someone was dumb enough to put any potential shady deal in writing. Wouldn't be the first time, but it requires a special kind of incompetence to do that.
And to be clear, the ones shorting _against_ the position _your customers hold_.
But there is the possibility that Robinhood was also cutting trading to appease Citadel, who to my understanding, just happened to re-engage their short positions right before Robinhood cut buying to Gamestop stock.
If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.
If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.
Because anyone buying right away after funding an account or selling the same day as buying is buying on margin. Margin is used to make a lot of the "instant" stuff happen. True cash accounts make them difficult to use for the day trading these people like to do.
https://finance.zacks.com/tax-rules-use-proceeds-stock-sales...
https://www.fidelity.com/learning-center/trading-investing/t...
https://finance.zacks.com/tax-rules-use-proceeds-stock-sales...
https://www.fidelity.com/learning-center/trading-investing/t...
Also they can't use customer funds to fund the deposit, it has to be out of their pocket.
https://finance.yahoo.com/video/heres-why-robinhood-restrict...
>And we just can't afford-- well, we're not a clearing firm, but our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it.
https://finance.yahoo.com/video/heres-why-robinhood-restrict...
>And we just can't afford-- well, we're not a clearing firm, but our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it.
Right. I get that. But if buying on margin is the problem, block buying on margin. Why block buying when people have the cash already settled in their account as well?
Edit: Answered in another chain.
https://news.ycombinator.com/item?id=25971718
Edit: Answered in another chain.
https://news.ycombinator.com/item?id=25971718
> If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.
Because DTCC requires cash collateral while the transaction is settled whether the transaction happens in a margin account or a cash account. There's no distinction from DTCC's perspective. DTCC (reportedly) increased the collateral on $GME transactions to 100% of the transaction price compared to the typical 1-3% of the price.
Because DTCC requires cash collateral while the transaction is settled whether the transaction happens in a margin account or a cash account. There's no distinction from DTCC's perspective. DTCC (reportedly) increased the collateral on $GME transactions to 100% of the transaction price compared to the typical 1-3% of the price.
Thanks for that information. I didn’t know that or about DTCC. Is raising the collateral on transactions like that typical?
Maybe Citadel knew about RH's difficulties and timed their moves accordingly. For smart person who knows how RH's model works (I am neither, btw), which I'm sure Citadel employs many of, it wouldn't have been hard to predict.
Robinhood sends their order flow to Citadel.
Citadel would know before anybody else in the market that the massive number of buy orders from RH had just gone to zero. They would also know that sell orders were still coming in.
This would allow Citadel to profit massively on the backs of the RH customers even if there was no direct collusion.
The thing is, RH isn’t stupid. They knew that Citadel (their biggest customer) would see that orders went to zero before anyone else and could move accordingly. RH didn’t need to explicitly warn Citadel in advance - the very nature of their relationship meant that they would be told in advance.
Citadel would know before anybody else in the market that the massive number of buy orders from RH had just gone to zero. They would also know that sell orders were still coming in.
This would allow Citadel to profit massively on the backs of the RH customers even if there was no direct collusion.
The thing is, RH isn’t stupid. They knew that Citadel (their biggest customer) would see that orders went to zero before anyone else and could move accordingly. RH didn’t need to explicitly warn Citadel in advance - the very nature of their relationship meant that they would be told in advance.
And what did Citadel do with that info? Citadel is one of several internalizers Robinhood uses. Each of them got the same data. They are all competitors.
Can you explain the actual trade you are suggesting happened?
Can you explain the actual trade you are suggesting happened?
This doesn't make much sense. One way Citadel could have known there was a massive number of buy orders would be to simply read WSB.
WSB didn’t know about RH buy orders going to zero for everyone until at least half an hour after it happened. Citadel knew before anyone else on the market and could act accordingly to short.
> As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades.
That's not true, they only blocked trades on those specific stocks. If it was really a liquidity issue then they could have rate limited all trades equally regardless of the stock in question.
That's not true, they only blocked trades on those specific stocks. If it was really a liquidity issue then they could have rate limited all trades equally regardless of the stock in question.
Not really, because the amount of deposit you need to put up is proportional to the volatility, among other factors. Therefore it makes sense to shut down trading for the stocks that incur a disproportionately high amount of deposit requirements for them. I guess it's possible for them to say "fuck it" and let everything trade until they run out of money, but I don't think they have an obligation to do that.
The collateral required by Robinhood’s clearing house to trade these stocks was raised to 100%, and it takes 2 days for trades to clear. Required collateral for other equities was not raised so there was no reason any other equities needed to be limited.
Those particular stocks had their deposit requirements increase, not all stocks.
You'll notice on Friday, a list of stocks with high volatility had restricted trading - including non-meme stocks, like AMD. It's a reaction to higher holding percentages.
The liquidity claim on tv was never supported and was later retracted. David Portnoy also called it out directly as well. Liquidity was not the reason for Robin hoods actions.
The deposit requirements on those stocks were increased from 2% to 100%.
The collateral requirements differ from stock to stock.
Do you actually know of a specific firm that kept its short position open through to Thursday? They would have had to survive through Tuesday and Wednesday, which seems unlikely if they were one of the original sub-$10 shorts.
Yes, because if they'd bought more they'd have lost money, and RobinHood only stopped them buying.
"but we could have driven the price up by cornering the market" I hear RobinHood/WSB users say.
Maybe, but that would be illegal market manipulation. So if your case is that you lost out because RobinHood wouldn't facilitate a crime, you have a poor case.
"but we could have driven the price up by cornering the market" I hear RobinHood/WSB users say.
Maybe, but that would be illegal market manipulation. So if your case is that you lost out because RobinHood wouldn't facilitate a crime, you have a poor case.
Ladder short attack caused the price to drop during the low volume.
Every time artificial limits were imposed by RH, the price dropped in __all__ the restricted stocks. That is when they restricted shares to 0, or to 2, and subsequently to 1, and again to 0.
On Friday, there were puts expiring and HFs stood to lose a lot, they didn't, and the answer is obvious as to why.
Every time artificial limits were imposed by RH, the price dropped in __all__ the restricted stocks. That is when they restricted shares to 0, or to 2, and subsequently to 1, and again to 0.
On Friday, there were puts expiring and HFs stood to lose a lot, they didn't, and the answer is obvious as to why.
Everything I can find online about this "ladder short attack" points to the GME activity. Does anybody have any explanation for this that predates the last week? This is not the first short squeeze, nor the first outage for retail traders during a volatile period. The only explanation I see on reddit refers to hedge funds lowering their bids, which isn't sufficient to explain the market actually dropping (there were other buyers out there, and market makers). Anyone can put in a lowball bid but it doesn't matter if it's far off-book.
What does make sense to me is that cutting off a substantial amount of retail flow would reduce buying pressure, causing all market participants to regain at least a little confidence in a reversion to the mean. It just seems pretty tinfoil-hatty to me to view this as some sort of elite cabal, as if RH and Citadel were somehow the only participants who could effect price changes.
What does make sense to me is that cutting off a substantial amount of retail flow would reduce buying pressure, causing all market participants to regain at least a little confidence in a reversion to the mean. It just seems pretty tinfoil-hatty to me to view this as some sort of elite cabal, as if RH and Citadel were somehow the only participants who could effect price changes.
2014 do you guys even know how to DuckDuckGo? https://seekingalpha.com/instablog/11442671-gerald-klein/309...
During the duration of restricted flow there were 800K shares sold at $120 and $140 in two batches on Thursday, significantly lower than the market price, infact, whoever sold them got sold them at 300M less than market value. This sudden drop caused the price to fall and trigger stop losses. This happened before.
During this period (looks like at least 10:30-noon ET) there were 11 volatility halts (and auction-priced reopenings) due to price movement. The stock spent more time halted than open!
Reopening auctions concentrate trading volumes. This may look more suspicious because volume is so concentrated, but in reality they give about five minutes for many participants to join and it all executes at one price. Prices I see for reopenings are approximately
330 290 265 226 170 140 120 141 170 210 216
The idea that the 120,140 were lower than "market prices" is solidly in tail-wagging-dog category. GME sold off hard, yes, but it was over the course of almost an hour and with substantial trading across the entire price range. This is natural when any imbalanced order flow has previously pushed prices and then subsides.
Note that 120 was the low and prices retraced through about half of the prior range. That retracement started at around 11:20 ET. Do you know when RH or other brokers had opening buy orders blocked and subsequently unblocked? Given that RH needed to secure cash for DTCC'S requirements, I expect that retracement was during the blocked period still.
Overall this still looks like tinfoil hat theory from WSB. Volatility looks crazy and it's easy to see demons in the shadows.
Reopening auctions concentrate trading volumes. This may look more suspicious because volume is so concentrated, but in reality they give about five minutes for many participants to join and it all executes at one price. Prices I see for reopenings are approximately
330 290 265 226 170 140 120 141 170 210 216
The idea that the 120,140 were lower than "market prices" is solidly in tail-wagging-dog category. GME sold off hard, yes, but it was over the course of almost an hour and with substantial trading across the entire price range. This is natural when any imbalanced order flow has previously pushed prices and then subsides.
Note that 120 was the low and prices retraced through about half of the prior range. That retracement started at around 11:20 ET. Do you know when RH or other brokers had opening buy orders blocked and subsequently unblocked? Given that RH needed to secure cash for DTCC'S requirements, I expect that retracement was during the blocked period still.
Overall this still looks like tinfoil hat theory from WSB. Volatility looks crazy and it's easy to see demons in the shadows.
Here are some explanations directly taken from WSB.
https://www.reddit.com/r/wallstreetbets/comments/l9auf5/impo...
https://www.reddit.com/r/wallstreetbets/comments/l9auf5/impo...
Thank you for linking this. IMHO the reddit thread is useless (I'm looking for older evidence of this term) but the linked post from seekingalpha is from 2014:
https://seekingalpha-com.cdn.ampproject.org/v/s/seekingalpha...
The description of a short ladder attack from 2014 strongly implies that the short party is attemping to manipulate a stock from its prevailing fundamental value. There is a key difference in that GME's fundamental value is nowhere near the $300+ range that it was trading it on Thursday!
There need not be a misinformation campaign or "attack" for well-capitalized fundamental traders to see opportunity to sell into this. Especially after seeing the capital crunch nailing retail brokers.
https://seekingalpha-com.cdn.ampproject.org/v/s/seekingalpha...
The description of a short ladder attack from 2014 strongly implies that the short party is attemping to manipulate a stock from its prevailing fundamental value. There is a key difference in that GME's fundamental value is nowhere near the $300+ range that it was trading it on Thursday!
There need not be a misinformation campaign or "attack" for well-capitalized fundamental traders to see opportunity to sell into this. Especially after seeing the capital crunch nailing retail brokers.
Here’s from investopedia https://www.investopedia.com/articles/analyst/030102.asp
Agreed.
I wondered if it was autocorrect but it's all over reddit too.
As best as I can see, they're saying the price falls if hedge funds decide to lower the bid price. That doesn't make much sense to me, but I'm not (quite) all knowing so...
I wondered if it was autocorrect but it's all over reddit too.
As best as I can see, they're saying the price falls if hedge funds decide to lower the bid price. That doesn't make much sense to me, but I'm not (quite) all knowing so...
Since apparently I can't edit my comment, here is an interesting read: https://www.reddit.com/r/wallstreetbets/comments/l9auf5/impo...
> Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users?
Yes, because you'd have to prove that Robinhood volume alone caused that drop in price. Robinhood isn't that big, and GME volume was crazy on Thursday.
It's equally likely (and equally impossible to prove) that Robinhood saved their users money by preventing them from investing in a stock that was already up 500% and clearly overvalued relative to its fundamentals.
This is the part that gets me about this: even now, after the mania has passed, everyone still thinks that GME was somehow a "sure thing" investment driven by a clearly incorrect understanding of how short trading works. And even now, after the magical short call rapture that was supposed to have come on Friday never materialized, people still want to believe that it would have kept going up and up and up.
Guys, it wouldn't. It's a bubble. They pop. Everyone trying to buy at the peak was making a terrible investment decision.
Yes, because you'd have to prove that Robinhood volume alone caused that drop in price. Robinhood isn't that big, and GME volume was crazy on Thursday.
It's equally likely (and equally impossible to prove) that Robinhood saved their users money by preventing them from investing in a stock that was already up 500% and clearly overvalued relative to its fundamentals.
This is the part that gets me about this: even now, after the mania has passed, everyone still thinks that GME was somehow a "sure thing" investment driven by a clearly incorrect understanding of how short trading works. And even now, after the magical short call rapture that was supposed to have come on Friday never materialized, people still want to believe that it would have kept going up and up and up.
Guys, it wouldn't. It's a bubble. They pop. Everyone trying to buy at the peak was making a terrible investment decision.
All bubbles pop, all soap becomes a bubble. Your statement is true technically. There is no way to argue with that.
The 1000000-dollar question is “when”.
Zerohedge (banned here) has been forecasting the pop of SPX and Nasdaq for several years now...
The 1000000-dollar question is “when”.
Zerohedge (banned here) has been forecasting the pop of SPX and Nasdaq for several years now...
Let's see in a few months if it were the peak. I doubt that very much and my money is on it.
I say this with genuine love in my heart, and hoping dearly for you to see this more clearly: you got scammed. Those early short positions[1] are closed out, losses have been taken, GME is going to burble along for a bit as the people who scammed you exit their own positions and then it's going to crash back down to $80 or less. It is no longer a short squeeze, this is a speculative bubble sustained by people like you who were lied to about it being a short squeeze.
[1] Obviously people are taking out new shorts like crazy on this stock given the bubble.
[1] Obviously people are taking out new shorts like crazy on this stock given the bubble.
It’s the specific users who couldn’t make trades who would need to show damage in the action under discussion. Not the wider world.
This thread is full of people who have no idea how the exchanges, brokers, clearing firms and clearing houses operate.
https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
This happens in every thread about every subject. Most users don't know anything, any expert will tell you it's the case when their subject is discussed here. The onus is on the knowledgeable to educate and correct and help and be charitable, and we usually see this.
We shouldn't try to shame or label users without at least trying to help first. Try to improve a situation and not make things worse. That way HN gets better.
We shouldn't try to shame or label users without at least trying to help first. Try to improve a situation and not make things worse. That way HN gets better.
Of course. This thread was extremely off-base. The entire thread from the top comment to the last comment assumes maleficence by Robinhood.
It's very disappointing. I don't expect people to know these things. But on HN, I'd expect them to ask or listen or read about it. Instead people just post about how it's a big finance conspiracy and how they're going to sue everyone...
I don't trade stocks at all, I just played a bit around with crypto for some years. For me it seems, as traditional stock exchanges looks like in stone age compared to the crypto world, when I really need days to make the deal in the background. Also then I don't understand how it needs one one side days to make the deal and on the other side there exist HF traders, who do many, some say as many as 1000 trades per second, maybe, I don't know .., but how does this work.
I remember some years ago, a normal banc transfer needed always 3 working days (so 5 over the weekend). Then came the crypto hype and the time dropped to less than a hour, even for normal people. I wonder if we see something similar here in future.
Also some crypto trading platforms, started to trade with stocks in different forms. I wonder how this will play out in future. I think traditional exchanges have to move forward fast now.
I remember some years ago, a normal banc transfer needed always 3 working days (so 5 over the weekend). Then came the crypto hype and the time dropped to less than a hour, even for normal people. I wonder if we see something similar here in future.
Also some crypto trading platforms, started to trade with stocks in different forms. I wonder how this will play out in future. I think traditional exchanges have to move forward fast now.
I agree broadly. I think it's just institutional momentum. We could do settlement within minutes for 99% of trades. The only reason we haven't is because 100+ years ago people though 2 days (T+2) was quick and we haven't updated it.
The EU is gradually forcing its members to do T+1 and eventually (I think decades in the future) wants same day for most products. That reduces risk and it makes the market fairer (RobinHood have had cash flow problems they wouldn't have had with T+0 settlement and the big boys don't have to worry about that).
I guess we have to wait. Some of these places are still using COBOL, a language first introduced in 1959!? That's how complex, legacy, under invested etc many back office setups are.
The EU is gradually forcing its members to do T+1 and eventually (I think decades in the future) wants same day for most products. That reduces risk and it makes the market fairer (RobinHood have had cash flow problems they wouldn't have had with T+0 settlement and the big boys don't have to worry about that).
I guess we have to wait. Some of these places are still using COBOL, a language first introduced in 1959!? That's how complex, legacy, under invested etc many back office setups are.
>The only reason we haven't is because 100+ years ago people though 2 days (T+2) was quick and we haven't updated it
T+2 has been around since 2017, not for 100 years. It was T+3 before that in the US. Before computers were in use, I believe it took 2 weeks and was gradually reduced to T+3 during the 70s and 80s.
T+2 has been around since 2017, not for 100 years. It was T+3 before that in the US. Before computers were in use, I believe it took 2 weeks and was gradually reduced to T+3 during the 70s and 80s.
Jesus.
I think I was so lucky to fall into mostly doing front office. Everything back office is like legacy software only it's people and business processes.
Good knowledge, if never have guessed it was so recent!
I think I was so lucky to fall into mostly doing front office. Everything back office is like legacy software only it's people and business processes.
Good knowledge, if never have guessed it was so recent!
Stock trading kind of skyrocketed in the late 1960s. It got to the point where the NYSE had to close on Wednesdays just to catch up with the all the trading paperwork from Monday and Tuesday (Thursday and Friday was handled over the weekend). This led to brokerages buying computers to start to manage everything, just in time for trading volume to crash around 1970 and brokerages going bankrupt left and right because of all the computer investments they made.
Would you be surprised to learn that the exchanges switched to using dollars and cents for quotes and trades only in the 1990s? Prior to that it was dollars and fractions of a dollar (like 1/8, 1/32, etc). Strangely enough, all the fractions used were powers of two and thus could be represented exactly in binary. Now that we use dollars and cents, you don’t get IEEE754 floating point representations for all trades. Progress!
Would you be surprised to learn that the exchanges switched to using dollars and cents for quotes and trades only in the 1990s? Prior to that it was dollars and fractions of a dollar (like 1/8, 1/32, etc). Strangely enough, all the fractions used were powers of two and thus could be represented exactly in binary. Now that we use dollars and cents, you don’t get IEEE754 floating point representations for all trades. Progress!
Is there a good source for the technical history about exchanges? Would love to know more about it.
I am unaware of one, but would also find it interesting. If you know about an event, you can usually search and find some more information about it.
Don't blame Cobol for the 2 days. Cobol might have old roots, but I'm sure it's many many times faster as all the fancy JavaScript and Python stuff.
It's just because because the Exchanges are lazy and did not care until now.
It's just because because the Exchanges are lazy and did not care until now.
Sorry, I'm not blaming cobol. I have a lot of respect for the older languages. Anything that old works, and the people who made it were engineers in the true sense of the word.
Why? Surely them blocking buys for any individual (or even small group of them) is within their rights per their customer agreement. But blocking them en masse is market manipulation, and their tos isn’t going to protect them from that.
My understanding is just because something meets the layman definition of, say, “market manipulation” doesn’t mean it meets the legal definition of that. This also applies to things like recklessness - the legal definition and the layman definition are different.
Furthermore, AFAIK it’s not that something like “market manipulation” is illegal - it’s usually more complex than that, and might only be illegal under circumstances XYZ.
It’s tempting to read laws as if they’re written in plain English, but it’s really more like a specialized dialect where words and phrases have different (and often complex) meanings.
Furthermore, AFAIK it’s not that something like “market manipulation” is illegal - it’s usually more complex than that, and might only be illegal under circumstances XYZ.
It’s tempting to read laws as if they’re written in plain English, but it’s really more like a specialized dialect where words and phrases have different (and often complex) meanings.
Market manipulation requires intent to artificially change the stock price. It isn't everything that changes the stock price otherwise any large organisation or person with clout would be constantly market manipulating all day long.
The argument that Reddit/WSB users manipulated the market is a more difficult one to make vs. the argument that RH manipulated the market when they restricted their users to only sell GME. If they stopped both buying and selling then GME would not have dropped the way it did.
RH CEO’s denial said they made the move to protect the firm and their customers, but blocking buying and selling would’ve given them the protections without the risk of causing a change in the price. So it’s hard to believe that RH’s intent was anything but pushing the price of GME down to cover their customer’s short position.
RH CEO’s denial said they made the move to protect the firm and their customers, but blocking buying and selling would’ve given them the protections without the risk of causing a change in the price. So it’s hard to believe that RH’s intent was anything but pushing the price of GME down to cover their customer’s short position.
That reddit/wsb didn't market manipulate is in no way an argument for robin hood having market manipulated.
Again, it's fine to do things that cause stock prices to move. That robin hood could have reduced their functionality further in order to affect the stock price less is not relevant. If they have some duty to go out of their way to minimise their impact on stock prices, its above and beyond regular market manipulation.
Again, it's fine to do things that cause stock prices to move. That robin hood could have reduced their functionality further in order to affect the stock price less is not relevant. If they have some duty to go out of their way to minimise their impact on stock prices, its above and beyond regular market manipulation.
So when they reopened limited trading and prevented people who already had positions from acquiring more, how did that help their case that it was done because of their obligations to their clearing house? If they said “ok, everyone can purchase 5 additional shares” it’d be one thing. But they said “nobody can acquire to own more than 5 shares”. Some of those shares people owned were already settled....
Honestly, as someone who writes software, my first guess is that "per user rate limiting of new, unsettled individual security positions" is most likely not something that was built in to their product. It's also not something to YOLO out into production during an extreme volatility event when people are already mad at you.
Adding a static check of holding was likely much more straight forward.
In traditional Robinhood-style, this decision prioritized growth (allowing new users to still sign up and buy)
I guess a different alternative would have been just selling as much GME until they reach the maximum they could make the obligations for, but then it probably would have been considered less "fair" (if one person could buy 1000 shares, and then no one else can buy any).
You may not agree with Robinhood leadership, or Robinhood as a company (I know that I don't), but this can really be thought of as a #hugops moment where they had to figure out how to track down and address the root of these (multiple) issues in real-time. They most definitely did not come out with the "best" solution.
Adding a static check of holding was likely much more straight forward.
In traditional Robinhood-style, this decision prioritized growth (allowing new users to still sign up and buy)
I guess a different alternative would have been just selling as much GME until they reach the maximum they could make the obligations for, but then it probably would have been considered less "fair" (if one person could buy 1000 shares, and then no one else can buy any).
You may not agree with Robinhood leadership, or Robinhood as a company (I know that I don't), but this can really be thought of as a #hugops moment where they had to figure out how to track down and address the root of these (multiple) issues in real-time. They most definitely did not come out with the "best" solution.
Looks like I fell for a “conspiracy theory” here... I’m going to avoid any stock-market related comments on HN from here on out :p
Why can't non-Robinhood holders of GME sue Robinhood, though? If you can prove that RH's actions drove the stock down, then aren't they the victims (and also not bound by the user agreement)?
>If you can prove that RH's actions drove the stock down
That'd at best, prove harm, which is a necessary but not sufficient condition for a successful lawsuit. You'd also need to prove wrongdoing, which is hard because they seemed to have acted so they can fulfill their deposit requirements.
That'd at best, prove harm, which is a necessary but not sufficient condition for a successful lawsuit. You'd also need to prove wrongdoing, which is hard because they seemed to have acted so they can fulfill their deposit requirements.
Assuming that's true - the big issue is that Vlad said very clearly that they did not have a liquidity problem. You can't say that you're restricting deposits because the clearinghouses require you to put up more cash then immediately follow that by saying you have plenty of cash.
In Europe, mandatory arbitration are usually unlawful. European Union Council Directive 93/13 on Unfair Terms in Consumer Contracts creates a rebuttable presumption that pre-dispute arbitration clauses in consumer contracts are invalid. The reason is the unequal bargaining power between the contracting parties in consumer contracts.
I don't necessarily support forced arbitration but... I would rather not pay the court fees because a bunch of people are upset their broker didn't accept their orders and want to waste the courts time over it.
> I would rather not pay the court fees because a bunch of people are upset their broker didn't accept their orders and want to waste the courts time over it.
I like how you trivialize it. Didn't they lose a ton of money, potentially their savings, because "their broker didn't accept their orders"?
Repeat that several times in your head, how does it sound?
I like how you trivialize it. Didn't they lose a ton of money, potentially their savings, because "their broker didn't accept their orders"?
Repeat that several times in your head, how does it sound?
You're right that I'm trivialising it, and everyone has a right to a hearing.
This case will be a waste of time though.
The broker has to offer best efforts, but if something goes wrong and they can't execute the order then that's tough.
Even if that weren't true, this case hinges on whether those orders would have driven the price up (it didn't move much either way AFAIK). So to make the case, the class have to collectively admit to market manipulation. RobinHood stopping them was like a taxi driver refusing to drive robbers to the bank, the robbers don't get to sue when their dastardly plot is foiled! Or they can sue, but they'll lose and open themselves up further to prosecution!
This case will be a waste of time though.
The broker has to offer best efforts, but if something goes wrong and they can't execute the order then that's tough.
Even if that weren't true, this case hinges on whether those orders would have driven the price up (it didn't move much either way AFAIK). So to make the case, the class have to collectively admit to market manipulation. RobinHood stopping them was like a taxi driver refusing to drive robbers to the bank, the robbers don't get to sue when their dastardly plot is foiled! Or they can sue, but they'll lose and open themselves up further to prosecution!
Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users.
Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too.
This will be fascinating to watch. Can the repair the brand damage? I’m skeptical.
Is there any similar scenario that has occurred at another brokerage firm in the past that might leave clues to examine to understand potential user actions here?
Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too.
This will be fascinating to watch. Can the repair the brand damage? I’m skeptical.
Is there any similar scenario that has occurred at another brokerage firm in the past that might leave clues to examine to understand potential user actions here?
I don't have a Robinhood account, and I'm not involved in the GME/WSB stuff, but I would think twice about opening a Robinhood account now.
Indeed, it's been educational about which brokers are using other clearing houses (sorry if I get the terminology wrong), and which are direct.
But then badly behaved businesses like Godaddy don't seem to suffer or go out of business, so I suspect Robinhood won't have too many long term problems.
Indeed, it's been educational about which brokers are using other clearing houses (sorry if I get the terminology wrong), and which are direct.
But then badly behaved businesses like Godaddy don't seem to suffer or go out of business, so I suspect Robinhood won't have too many long term problems.
This is not the first time RH has gone down during critical moments in the market.
Yet their userbase grows and their users come back. They'll be fine.
Yet their userbase grows and their users come back. They'll be fine.
This time it is different. Previously they had glitches etc. This time they by choice restricted users which lead their users loose.
Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.
Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.
Totally right, and furthermore, Robinhood is facing some serious solvency issues. Their PR releases claiming this was clearing house related was already highly dubious, and is self-contradicting because they are blaming it on a liquidity issue while saying it's not a liquidity issue.
But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their general solvency but ability to execute trades. This could easily cause a feedback loop that empties their accounts, at which point people are going to be unable to withdraw their cash which is goign to cause a bank run and drill the nails into their coffin even further. Healthy companies don't need to emergency borrow a billion dollars. If you have less than $250,000 on Robinhood, your account is FDIC insured so you'll eventually get your money back...but I think most people would prefer not to go through that process.
Robinhood is on a death spiral and prudent financial advice is to move any assets you have off of it as soon as possible.
But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their general solvency but ability to execute trades. This could easily cause a feedback loop that empties their accounts, at which point people are going to be unable to withdraw their cash which is goign to cause a bank run and drill the nails into their coffin even further. Healthy companies don't need to emergency borrow a billion dollars. If you have less than $250,000 on Robinhood, your account is FDIC insured so you'll eventually get your money back...but I think most people would prefer not to go through that process.
Robinhood is on a death spiral and prudent financial advice is to move any assets you have off of it as soon as possible.
The solvency issue is the root cause leading me to leave Robinhood personally. The limitation on market orders was the symptom; the cause was a rotten core. This is the true reason why everyone should leave Robinhood. I do not want to deal with realizing FDIC/SIPC insurance preferably ever in my lifetime.
You dealt with it when you eg had a Wachovia bank account before they became Wells Fargo. You saw it happen en masse in 2008.
FDIC guarantees funds to the bank. If the bank fails FDIC ensures YOU continue to access your account. If this means taking the bank into receivership and changing owners so be it. You can go to the FDIC website to see what banks have failed. Many do over the course of a year but the account owners are never at risk outside of the insurance amount on a single deposit account.
I hope you don’t keep more than 250,000 in an fdic insured account without additional insurance (which is silly because you could just open another account at the institution for additional coverage)
FDIC guarantees funds to the bank. If the bank fails FDIC ensures YOU continue to access your account. If this means taking the bank into receivership and changing owners so be it. You can go to the FDIC website to see what banks have failed. Many do over the course of a year but the account owners are never at risk outside of the insurance amount on a single deposit account.
I hope you don’t keep more than 250,000 in an fdic insured account without additional insurance (which is silly because you could just open another account at the institution for additional coverage)
This is tangential to RH, but never the less related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations?
What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent?
I found it difficult to understand the intricacies related to this question.
Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price...
What mechanism are there in place to insure that ETF will not deviate from the underlying stock?
What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent?
I found it difficult to understand the intricacies related to this question.
Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price...
What mechanism are there in place to insure that ETF will not deviate from the underlying stock?
An investment in an ETF or other mutual fund is putting your money in the hands of the managers of the fund. They set out objectives for the fund, but they don't necessarily have an obligation to meet those objectives or to keep the same objectives. They can change the objectives within the processes required by the bylaws of the fund. Most of the objectives will have weasel words for management discretion in case of volatile markets.
They have quarterly reporting obligations, and you can review those reports to see how they're doing. If you don't like what you see, you can sell the funds and/or file a shareholders' lawsuit and/or file a SEC complaint.
If you don't like that, the good news is with zero comissions as the norm, and fractional shares at many brokerages, you could build up your portfolio to match an index of your choice, without significant monetary transaction costs. It would take a lot of time to setup and when you made contributions, and dividend processing effort could be significant.
They have quarterly reporting obligations, and you can review those reports to see how they're doing. If you don't like what you see, you can sell the funds and/or file a shareholders' lawsuit and/or file a SEC complaint.
If you don't like that, the good news is with zero comissions as the norm, and fractional shares at many brokerages, you could build up your portfolio to match an index of your choice, without significant monetary transaction costs. It would take a lot of time to setup and when you made contributions, and dividend processing effort could be significant.
They are liquidated once the deviation is too big.
Each ETF share is backed by a unit of the underlying, so there's no price risk for the ETF issuer.
There are two kinds of ETF. Only one of them is operated like that. Check the fine print to be sure.
> Healthy companies don't need to emergency borrow a billion dollars.
Sure, move your holdings out of RH. I don't have an account there, and never had, and probably won't ever.
But, regardless of RH's health or lack thereof, most companies don't have a sudden change in collateral requirements.
If what I understand from forum posts and twitter threads and youtube interviews or CEOs on speakerphone is accurate,
On thursday morning, DTCC changed requirements so that net buy orders for GME pending settlement would need to have 100% of the value of the shares posted as collateral (marked to market at end of day). I don't know what the requirement was on Wednesday, apparently 1-2% is common, but I'd hope it was already elevated earlier in the week.
And that colateral has to be owned by the clearing firm (which is RH for RH), and apparently can't be formed from clients' money, possibly including settled cash from the clients who made the buy?
This isn't a long term cash need, it's only while there's a large amount of net buys in volatile stocks awaiting settlement. Assuming either clients stop buying so much (because some are selling, or it gets borint) after a while or the price stops moving so quickly, collateral requirements should go back down and RH can return the money. As long as their clients don't stiff them on the buys anyway.
That they were able to quickly get a billion dollars hints toward fine enough health (or crazy lenders).
More worrisome is that they apparently didn't have a plan for managing trading in stocks with high collateral requirements (some established brokerages had enough collateral to do nothing, others limited trading to settled cash and similar trades with reduced credit risk for the brokerage). I don't necessarily expect an upstart brokerage to have unlimited collateral, but planning and managing around insufficient collateral should have been done; and more transparency would be nice. Maybe they had done some planning though, I certainly wouldn't be able to get a $1 B loan in a single day, although who knows what it cost them.
Sure, move your holdings out of RH. I don't have an account there, and never had, and probably won't ever.
But, regardless of RH's health or lack thereof, most companies don't have a sudden change in collateral requirements.
If what I understand from forum posts and twitter threads and youtube interviews or CEOs on speakerphone is accurate,
On thursday morning, DTCC changed requirements so that net buy orders for GME pending settlement would need to have 100% of the value of the shares posted as collateral (marked to market at end of day). I don't know what the requirement was on Wednesday, apparently 1-2% is common, but I'd hope it was already elevated earlier in the week.
And that colateral has to be owned by the clearing firm (which is RH for RH), and apparently can't be formed from clients' money, possibly including settled cash from the clients who made the buy?
This isn't a long term cash need, it's only while there's a large amount of net buys in volatile stocks awaiting settlement. Assuming either clients stop buying so much (because some are selling, or it gets borint) after a while or the price stops moving so quickly, collateral requirements should go back down and RH can return the money. As long as their clients don't stiff them on the buys anyway.
That they were able to quickly get a billion dollars hints toward fine enough health (or crazy lenders).
More worrisome is that they apparently didn't have a plan for managing trading in stocks with high collateral requirements (some established brokerages had enough collateral to do nothing, others limited trading to settled cash and similar trades with reduced credit risk for the brokerage). I don't necessarily expect an upstart brokerage to have unlimited collateral, but planning and managing around insufficient collateral should have been done; and more transparency would be nice. Maybe they had done some planning though, I certainly wouldn't be able to get a $1 B loan in a single day, although who knows what it cost them.
"250,000 on Robinhood, your account is FDIC insured" That is only for the cash on hand, the securities are covered by SIPC.
FDIC is for banks. SIPC (of which RH is a member) is for brokerage houses.
https://www.sipc.org/about-sipc/
https://www.sipc.org/about-sipc/
[deleted]
Your claim that RH restricted users by choice seems false. RH is required by NSCC/DTCC rules to post collateral for trades in the process of settlement. As a result of volatility, the collateral requirements for meme stocks shot up from something like single digits to something perhaps approaching 100%. Robinhood was apparently forced to draw down a $600MM line of credit just to cover the trades it had already allowed.
Sounds like Robinhood was setup to fail from the beginning, if so. If you make it as easy as possible to do trades but then start getting "rate-limited" essentially, it was never gonna scale in the first place.
Gonna be interesting to see what gets to replace Robinhood for easy and reliable trades in the future.
Gonna be interesting to see what gets to replace Robinhood for easy and reliable trades in the future.
Don't let me come across like I'm defending Robinhood, which is an online casino dressed up to look like an investment application.
I believe this explanation but I do still have questions.
Why didn't they just restrict buying like they did in Friday instead of halting it completely? By halting it completely they caused a panic which caused lots of people to sell.
Why didn't they halt or restrict buying of any other stocks? Why only the meme stocks? It should have affected their financial responsibilities to the clearinghouse the same ways, no?
Why did they give no warning and explanation for what was about to come? The abruptness of it was obviously going to contribute to the panic.
The standard expiration date for meme stock options was the day after they halted buying. This caused their own customers holding those contracts to lose money. Why did they claim they were doing this "to protect their customers" when it was their customers who got screwed by this?
Why didn't they just restrict buying like they did in Friday instead of halting it completely? By halting it completely they caused a panic which caused lots of people to sell.
Why didn't they halt or restrict buying of any other stocks? Why only the meme stocks? It should have affected their financial responsibilities to the clearinghouse the same ways, no?
Why did they give no warning and explanation for what was about to come? The abruptness of it was obviously going to contribute to the panic.
The standard expiration date for meme stock options was the day after they halted buying. This caused their own customers holding those contracts to lose money. Why did they claim they were doing this "to protect their customers" when it was their customers who got screwed by this?
No, clearinghouse requirements can apparently be per-symbol, and it's been reported that that's exactly what happened this week. It's a function of the volatility of the stock and also the proportion of the stock to all stocks being traded at a particular brokerage. There's an actual published formula somewhere on NSCC's site.
Why did they give no warning? I don't know, I think they're a clownfire.
Why did they give no warning? I don't know, I think they're a clownfire.
This is for stock sales which they did not restrict. Robinhood stopped the purchase of stock which does not require a collateral because the money is coming directly from the users cash balance. Don’t believe whatever they say, RH action was specifically to stop the short squeeze.
This is just not true. They do have to post collateral for purchases, and the customer's own money cannot be used as the collateral.
Just curious -- why not?
The search terms you want is “T+2 settlement”. TLDR all trades take 2 days to settle but brokerages abstract that via “loans” and collateral.
Tell me if I'm way off here:
The clearinghouse collateral requirements in part protect the clearinghouse from things that can go wrong at the brokerage, like if Robinhood had a vulnerability that let people place huge orders without paying for them, and they were, like, put out of business overnight.
The clearinghouse collateral requirements in part protect the clearinghouse from things that can go wrong at the brokerage, like if Robinhood had a vulnerability that let people place huge orders without paying for them, and they were, like, put out of business overnight.
The DTCC requirements are all about protecting brokerages (and other counter parties) from each other. Basically (and I’m not an expert in this) it’s a risk sharing scheme where if Robinhood (or any other broker) goes under all the other members cover the positions.
I don’t think it has anything to do with margin vs non-margin accounts for instance. It’s just a formula where you split up the outstanding shares by the VaR as I’d get a capital requirement.
I don’t think it has anything to do with margin vs non-margin accounts for instance. It’s just a formula where you split up the outstanding shares by the VaR as I’d get a capital requirement.
Thanks. I don't use Robinhood but I thought your buying fund there consisted of actually-deposited cash. In that case why can't they use a customer's money to cover the collateral? Is it a business practice or a requirement for some other reason?
A) no they, and most brokers will let you start trading as soon as you “deposit” money even though you have many days to reverse those deposits. But:
B) your shares trading immediately is a fiction. It takes days for those trades to settle. And any subsequent trades you make with those funds are all subject to credit risk. The central clearing house collateral rules are about risk management around that multi day float.
I think but am not an expert on this that the DTCC times explicitly require the capital to come from the brokerage not the clients. I don’t know why but can guess that it’s because it’s the brokerages taking on the risk not the individuals.
B) your shares trading immediately is a fiction. It takes days for those trades to settle. And any subsequent trades you make with those funds are all subject to credit risk. The central clearing house collateral rules are about risk management around that multi day float.
I think but am not an expert on this that the DTCC times explicitly require the capital to come from the brokerage not the clients. I don’t know why but can guess that it’s because it’s the brokerages taking on the risk not the individuals.
Aah ok my mistake, it does look like the "cash" account type is not the default. Thanks for the info.
You state all this as though their choices were not deliberate. Of course they are acting within the rules, while trying to foster an appearance of all you can eat buffet instant buy/sell, when the market really doesn't work that way. However, users came to expect that convenience. That business model may be inherently untenable in the face of events like this.
Your argument is that Robinhood "chose" to create the impression that people could trade any meme stock they wanted with impunity on their platform, but didn't do the work to ensure that they could. I agree, that's a choice they made.
The comment upthread argues that Robinhood "chose" to retrict trading in meme stocks. That argument appears to be false. Robinhood did not have a choice whether or not to restrict trading; it simply didn't have the money to cover the clearing for those trades.
The comment upthread argues that Robinhood "chose" to retrict trading in meme stocks. That argument appears to be false. Robinhood did not have a choice whether or not to restrict trading; it simply didn't have the money to cover the clearing for those trades.
Even assuming you're right, they've taken a massive PR hit and the public is convinced that RH screwed over their users by choice, and made a profit out of it. I don't think they'll come back in one piece, unless no one capitalizes on the movement and gets some competition going for a while.
You’re assuming this, right? Like, they haven’t said it, and have said on TV twice that this decision wasn’t related to liquidity.
To be clear, I agree with this assessment, but they’re being anything but clear about it, which as a user, has me even more worried.
To be clear, I agree with this assessment, but they’re being anything but clear about it, which as a user, has me even more worried.
They reported this morning that their clearing costs 10x'd, and it was reported in the NYT and (I think?) WSJ yesterday. Further, other retail brokerages and clearing brokerages unrelated to Robinhood reported the same thing.
Why did the collateral requirements shoot?
The traditional explanation of clearing is that it’s to solve the problem where I buy a share of Microsoft from you for $100. The trade won’t complete for a couple days so there’s a risk that either I don’t show up with the money or you don’t show up with the share.
This might happen because I went bankrupt, or MS starts trading for 1000 and you’d rather not give up the share, or whatever. To solve this，there are clearing houses that have collateral requirements to help ensure that the trade is executed as it was supposed to.
Most stocks don’t change that rapidly, so there’s relatively low risk that someone blows up. But GME has both extremely high volatility and is highly overvalued, which makes the risk of someone trying to walk away from it can’t meet their obligations much higher.
This might happen because I went bankrupt, or MS starts trading for 1000 and you’d rather not give up the share, or whatever. To solve this，there are clearing houses that have collateral requirements to help ensure that the trade is executed as it was supposed to.
Most stocks don’t change that rapidly, so there’s relatively low risk that someone blows up. But GME has both extremely high volatility and is highly overvalued, which makes the risk of someone trying to walk away from it can’t meet their obligations much higher.
Because of the large realised vol in those names (paired with large future expected volatility) the DTCC asked for much larger margin requirements.
Yeah....except all the more legitimate brokerages didn't limit anything. TD Ameritrade made me place limit orders, but that is not even close to the same thing.
Fidelity was unaffected.
Fidelity was unaffected.
Public was limited by their clearinghouse. Several brokerages did this.
Some did not, mostly since their clientele wasn’t buying these anyhow.
Some did not, mostly since their clientele wasn’t buying these anyhow.
Name a big, reputable brokerage that did this.
A nice thing about being a big, reputable brokerage is that you have access to big, reputable piles of cash to cover clearing collateral.
A casino definitely can't shut down a blackjack game in the middle. That is not true.
What are you even arguing here? That the purpose of a brokerage is to take customers money and play weird games with it to maximize profits and is allowed to just not have enough money to cover all cash purchases?
That is like if a bank just didn't let customers withdraw their money, and kept operating like nothing was wrong. Clearly illegal.
What are you even arguing here? That the purpose of a brokerage is to take customers money and play weird games with it to maximize profits and is allowed to just not have enough money to cover all cash purchases?
That is like if a bank just didn't let customers withdraw their money, and kept operating like nothing was wrong. Clearly illegal.
Robinhood stopped allowing you to play new games of blackjack. You're suggesting that, as a casino customer, you could say "you can't shut this table down! I was going to make back my money on the next hand!" which is pretty funny.
I don't think this is at all like a bank that won't let you withdraw your money. I think it's like a brokerage that has to post 100% collateral --- out of their money --- for every share of GME that you ask it to buy, doesn't have the money to post that collateral, and thus can't buy any more GME for you.
I don't think this is at all like a bank that won't let you withdraw your money. I think it's like a brokerage that has to post 100% collateral --- out of their money --- for every share of GME that you ask it to buy, doesn't have the money to post that collateral, and thus can't buy any more GME for you.
No, that analogy doesn't fit. Fully half of robinhood users owned GME stock. They were in the middle of a bet. RH created a situation where the stock could only go down.
"I think it's like a brokerage that has to post 100% collateral --- out of their money"
How is this not the customers money? You deposited 100% of the collateral with RH. Banks can take your money and make loans with it so the bank can make profit, but only so long as they have your money for you when you want to use it.
"I think it's like a brokerage that has to post 100% collateral --- out of their money"
How is this not the customers money? You deposited 100% of the collateral with RH. Banks can take your money and make loans with it so the bank can make profit, but only so long as they have your money for you when you want to use it.
If you are operating a brokerage that can't cover when people are buying stock with all cash then you should be in breach and be forced to shut down and/or forced into bankruptcy by owing all the stockholders of the stocks in question the actual damages you caused them.
Your only real job is to operate fair and unbiased bid/ask spreads and execute trades fairly. If you aren't going to do that then you are running a scam on your customers.
How is this fundamentally different then you placing a bet at a roulette table and the casino changing the rules mid-spin to make sure you will lose?
Your only real job is to operate fair and unbiased bid/ask spreads and execute trades fairly. If you aren't going to do that then you are running a scam on your customers.
How is this fundamentally different then you placing a bet at a roulette table and the casino changing the rules mid-spin to make sure you will lose?
I think one thing people are very confused by is the “all cash” part of your sentiment. If you “deposit” money with Robinhood (or any other broker) and can trade it immediately (or any timeframe less than a few days) you are not trading cash. Cash takes days to move from 1 account to another without taking on credit risk.
Similarly if you sell shares in 1 symbol and buy shares in another in less of a time frame than a few days you aren’t using cash. You are using credit (because it takes days for sales to settle).
All of that credit risk is all currently legislated to go through a few bottlenecks who have the power to enforce their own credit rules.
Analogies are dumb but it would be like if Amex called all the casinos and said “everyone has 90% less credit than they did 2 minutes ago”. If you had a roulette ball running based on your previous credit line at Amex you can bet the Casino would grab that ball. Especially if it had 200k Amex lendees in their pits.
Similarly if you sell shares in 1 symbol and buy shares in another in less of a time frame than a few days you aren’t using cash. You are using credit (because it takes days for sales to settle).
All of that credit risk is all currently legislated to go through a few bottlenecks who have the power to enforce their own credit rules.
Analogies are dumb but it would be like if Amex called all the casinos and said “everyone has 90% less credit than they did 2 minutes ago”. If you had a roulette ball running based on your previous credit line at Amex you can bet the Casino would grab that ball. Especially if it had 200k Amex lendees in their pits.
In which case I can understand you not being able to buy, because you are buying on margin.
That is not what I'm talking about though. I'm talking about 100% cash.
If you are trading on margin you can get margin called. If you aren't though your broker has no right to do this kind of stuff.
You are suggesting the casino would grab the ball for people who were not using amex. Deeply illegal.
That is not what I'm talking about though. I'm talking about 100% cash.
If you are trading on margin you can get margin called. If you aren't though your broker has no right to do this kind of stuff.
You are suggesting the casino would grab the ball for people who were not using amex. Deeply illegal.
A casino will absolutely shut a machine or a table down whenever the hell they want.
I don't understand your argument. RH either has the money to put up collateral or they don't. They didn't this week. That seems like the end of the story. They can't just "choose" to have more cash on hand than they actually have.
I don't understand your argument. RH either has the money to put up collateral or they don't. They didn't this week. That seems like the end of the story. They can't just "choose" to have more cash on hand than they actually have.
Does not matter. You are dealing with brokage. Its on the brokrage to maintain the service and whenever I want to buy/sell my share I could. Not get restricted.
There is no restriction from SEC. Its money in app not privacy issue me/people would compromise.
There is no restriction from SEC. Its money in app not privacy issue me/people would compromise.
> There is no restriction from SEC
Correct, the restriction is from the DTCC.
Correct, the restriction is from the DTCC.
Maybe it's stupid, but I could forgive the outages, maybe because I wasn't doing any time critical trades when they happened. But deliberately limiting trades on dozens of stocks is so far past the line for me that I'm leaving Robinhood as soon as I find another brokerage I like.
During the other times, was their the perception that they were screwing their users over due to pressure by large financial institutions? That's a pretty salient difference for their brand.
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This wasn't "going down", it was active blocking of specific stocks because RH exposed themselves to massive risk by assuming the hedge funds they were pimping their customers out to would never be swiftly bankrupted.
RH was essentially letting their users pay full price for a stock, then lending that stock to hedge funds so they could use it against the actual stock owner by selling it short. Since the borrowed stock has already been resold (the stock the HF didn't own to begin with), now the question is if the HF can even afford to buy them all back. This is why the entire market dropped the other day, because HFs were selling off other positions to come up with the money. Sell offs could get a lot worse considering $GME is still currently shorted over 100%.
If the govt steps in to save the hedge funds at the expense of millions of average Joe's, or if the hedge funds pull some sort of bankruptcy loophole card resulting in the average Joe's holding the bag while they continue on, we could see people revolt against the entire financial system as we know it.
RH was essentially letting their users pay full price for a stock, then lending that stock to hedge funds so they could use it against the actual stock owner by selling it short. Since the borrowed stock has already been resold (the stock the HF didn't own to begin with), now the question is if the HF can even afford to buy them all back. This is why the entire market dropped the other day, because HFs were selling off other positions to come up with the money. Sell offs could get a lot worse considering $GME is still currently shorted over 100%.
If the govt steps in to save the hedge funds at the expense of millions of average Joe's, or if the hedge funds pull some sort of bankruptcy loophole card resulting in the average Joe's holding the bag while they continue on, we could see people revolt against the entire financial system as we know it.
>Indeed, it's been educational about which brokers are using other clearing houses (sorry if I get the terminology wrong), and which are direct.
Wait what? Is there a list somewhere? AFAIK interactive brokers (which doesn't engage in PFOF) also shut down trading.
Wait what? Is there a list somewhere? AFAIK interactive brokers (which doesn't engage in PFOF) also shut down trading.
Re IB: if you are a "Pro" account generally not. If you are a "Lite" account, yes they get paid for order flow.
As to the other point, I belive the issue was in settlement, not clearing, ie with DTCC collateral reqs.
As to the other point, I belive the issue was in settlement, not clearing, ie with DTCC collateral reqs.
Yes, this[1] was the one that I found when searching. It shows that Robinhood is it's own, but as we know they route to Citadel.
A bunch of others had a problem when Apex Holdings told them to restrict trading (or something along those lines).
[1]: https://investorjunkie.com/stock-brokers/broker-clearing-fir...
A bunch of others had a problem when Apex Holdings told them to restrict trading (or something along those lines).
[1]: https://investorjunkie.com/stock-brokers/broker-clearing-fir...
How come it works from all the way over here in Scandinavia? No problems with GME while RH was shutting it down.
Also, Robin Hood - the irony. They are clearly for the rich against the poor. More like the sheriff of nottingham!
Also, Robin Hood - the irony. They are clearly for the rich against the poor. More like the sheriff of nottingham!
>How come it works from all the way over here in Scandinavia? No problems with GME while RH was shutting it down.
Maybe because there's already a high barrier to trading US stocks (or stocks in general), so there wasn't enough people piling on to strain the brokerage's balance sheets?
Maybe because there's already a high barrier to trading US stocks (or stocks in general), so there wasn't enough people piling on to strain the brokerage's balance sheets?
Agreed. Probably highly likely that few others using that broker were involved.
Just luck. Trade Republic, a Robin-hood-alike in Germany, also had to shut down GME purchases.
I'm also in a European country and using my national bank for trading. In the end, my bank is using JP Morgan for NYSE trades, so in the end would be up to JP Morgan to block trades. But everything seems to have worked fine here all week.
Because we buy stocks on the open market paying courtage for someone to execute the trade.
This subthread is confusing clearinghouses, clearing brokers, and execution brokers.
Citadel is an execution broker. Their job is to match buyers and sellers.
Apex (in these conversations) is a clearing broker. Robinhood is its own clearing broker. Clearing brokers are responsible for ensuring that money and stock actually changes hands (this takes 2 days, but all of these firms work together to create the illusion, using credit, that it's instant; those credit arrangements are why brokerages post collateral).
Clearing brokers are members of clearinghouses. The relevant one here is (I think) NSCC, which is owned by DTCC. Policy set at DTCC determines how much collateral needs to be posted to cover any particular set of trades.
DTCC drastically ratcheted up the amount of collateral required to cover trades in meme stocks, which had the effect of 10x'ing the amount of cash Robinhood was required to post to insure that it would not go out of business before its current set of in-flight trades cleared. It made the same requirement of Apex, which passed restrictions down to its customers. These companies are contractually required to make good on collateral requirements, so there isn't much choice involved.
Citadel is an execution broker. Their job is to match buyers and sellers.
Apex (in these conversations) is a clearing broker. Robinhood is its own clearing broker. Clearing brokers are responsible for ensuring that money and stock actually changes hands (this takes 2 days, but all of these firms work together to create the illusion, using credit, that it's instant; those credit arrangements are why brokerages post collateral).
Clearing brokers are members of clearinghouses. The relevant one here is (I think) NSCC, which is owned by DTCC. Policy set at DTCC determines how much collateral needs to be posted to cover any particular set of trades.
DTCC drastically ratcheted up the amount of collateral required to cover trades in meme stocks, which had the effect of 10x'ing the amount of cash Robinhood was required to post to insure that it would not go out of business before its current set of in-flight trades cleared. It made the same requirement of Apex, which passed restrictions down to its customers. These companies are contractually required to make good on collateral requirements, so there isn't much choice involved.
The problem is not the cleaning houses, this article explains it really good https://www.bloombergquint.com/markets/clearing-firms-preven...
So there are couple of issues, one is the two day settlement, the other is increased capital requirements put in by DTCC.
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Im shutting down my TD ameritrade account because of this. I did not want to trade any of these wacky stocks but its clear to me that in the event of a material market movement or event they will block trades or fail to execute. Thats a real big problem
I've seen people who opened RobinHood accounts after all of this debacle with the forced selling of shares, etc.
Each FINRA arbitration case would be expected to cost the company up to 10,000 in fees. If anywhere near the 100,000 users who left negative reviews on the Google Play store for the app file an arbitration and pay the filing fee, Robinhood will absolutely go bankrupt.
If you are/were a Robinhood user: https://www.finra.org/arbitration-mediation/initiate-arbitra...
If you are/were a Robinhood user: https://www.finra.org/arbitration-mediation/initiate-arbitra...
Some previous (flagged) discussion about the Patreon mass arbitration story.
https://news.ycombinator.com/item?id=24016732
https://news.ycombinator.com/item?id=24016732
Submitting a negative review is a lot less effort than dealing with a court case. I think it’s unlikely a small percentage of 100,000 will pursue.
But remember the arbitration problem that doordash faced when a law firm created an easy-to-arbitrate system for workers?
just do a web search for "arbitration backfired"
you'll find this and other interesting cases :)
just do a web search for "arbitration backfired"
you'll find this and other interesting cases :)
>court case
I thought it is arbitration (which is less effort than a court case)
I thought it is arbitration (which is less effort than a court case)
And under California law consumers cannot be forced to bear those costs.
IIRC, customers still have to pay the filing fee, but beyond that, the costs are on the company.
For what it's worth, arbitration filing fees can be calculated at https://tools.finra.org/arbitration_calculator/ - they seem to start at $50 for specified damages, and $1575 for unspecified damages. (Obligatory: not a lawyer, not at all recommending that anyone do this without consulting one.)
I think there's a very good chance the reviews were not organic, but instead automated.
Highly doubt that, and wonder why you'd even think that - it's a pretty big movement with vocal users, submitting a review because you got scammed (which is what happened) is a very low threshold.
You can automate arbitration filings for users just as easily. Can’t wipe away 100k arbitration requests as easily as the same amount of negative reviews.
I’d even contribute financially to have such an app built, because if FINRA and the SEC won't act (no surprise!), citizens can and should.
I’d even contribute financially to have such an app built, because if FINRA and the SEC won't act (no surprise!), citizens can and should.
I highly doubt that. I filed a 1 star review and it literally only took like 30 seconds as you don't have to write anything to rate it.
This is a very good point, the question is where to go? I am European, we don't even have Robinhood here, so I had a dead eToro account with 140 EUR on it and Interactive Brokers, which we all thought was synonymous with quality and respect. However, they folded first, along with Degiro, which was the other "well-reputed" option available to us. Everyone started running to XTB, which limited trading on Friday afternoon/night.
In the US there is Webull, which went against their clients initially and then reversed. As an European - where should I go to? Binance/Kraken seems the only reasonable option at this point, however crypto has ties to the real world only on macro-economic scale (although very relevant) and you cannot use your "capital" to influence the world around you in a good way.
P.S. I know that Fidelity and other well-reputed vendors didn't turn coats, but I am not sure it is an option here. P.P.S. This reminded me of https://www.investopedia.com/terms/t/tina-there-no-alternati....
In the US there is Webull, which went against their clients initially and then reversed. As an European - where should I go to? Binance/Kraken seems the only reasonable option at this point, however crypto has ties to the real world only on macro-economic scale (although very relevant) and you cannot use your "capital" to influence the world around you in a good way.
P.S. I know that Fidelity and other well-reputed vendors didn't turn coats, but I am not sure it is an option here. P.P.S. This reminded me of https://www.investopedia.com/terms/t/tina-there-no-alternati....
> This is a very good point, the question is where to go?
There's Bux in The Netherlands. Haven't used them, though.
https://getbux.com/
There's Bux in The Netherlands. Haven't used them, though.
https://getbux.com/
I don't know but it seems like the more reliable businesses in Europe to use have higher fees or monthly charges...
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I seriously doubt it will be even a blip on their radar. In fact, I think this will be their “no such thing as bad publicity” moment and they will have massive growth. People have short memories (no pun intended) and the switching costs are also nontrivial.
What are the switching costs? Seems fairly trivial to move assets between brokerages.
RH charges $75 to transfer holdings to a different broker. If you have a big account that's probably worthwhile but I get the impression a lot of RH customers are small-time people who are just dabbling in the stock market for fun. If your account only holds $500-1000 of securities a $75 fee is pretty steep.
Or you know, just don't open any new positions there and transfer your funds back to your account once you have closed the rest like I did. Then you have nothing there, can deactivate your account and just open an account at another place.
Effectively $0. Outbound costs $75 at Robinhood. If you are moving more than a few hundred dollars, the new broker will reimburse the it.
Even without the user exodus I’d think there’s cause for concern regardless.
They’ve said their financial position is stable, yet they’re stopping trades because of the volume moving through their clearance system (if I’ve understood what Vlad was saying to Bloomberg correctly, they no longer use an external clearing house).
If it walks like a duck, and it quacks like a duck, then it’s probably a duck. And it’s probably good that it’s walking as it doesn’t sound like there’s a whole lot of liquidity left to swim in.
I worry about this for other massive firms, even leaving the current circus aside. As unlikely as it might seem, what happens if a Schwab or a Fidelity or a Vanguard gets into trouble from some as-yet-unseen event?
They’ve said their financial position is stable, yet they’re stopping trades because of the volume moving through their clearance system (if I’ve understood what Vlad was saying to Bloomberg correctly, they no longer use an external clearing house).
If it walks like a duck, and it quacks like a duck, then it’s probably a duck. And it’s probably good that it’s walking as it doesn’t sound like there’s a whole lot of liquidity left to swim in.
I worry about this for other massive firms, even leaving the current circus aside. As unlikely as it might seem, what happens if a Schwab or a Fidelity or a Vanguard gets into trouble from some as-yet-unseen event?
I don’t think so. Their settlement collateral deposited with the clearing house is unrelated to their own profit, loss or debt. It’s to cover customer trades in the event of a customer defaulting on settlement.
The collateral can be thought of as more like “server capacity”. Their customers’ demand for usage of the collateral exceeded what was available and they had to reject new trades with, continuing the analogy, an HTTP 429. That doesn’t mean that they’re suddenly insolvent.
The collateral can be thought of as more like “server capacity”. Their customers’ demand for usage of the collateral exceeded what was available and they had to reject new trades with, continuing the analogy, an HTTP 429. That doesn’t mean that they’re suddenly insolvent.
I agree this isn’t about Robinhood’s solvency, but it also means they’re essentially unable to execute trades in a way that’s consistent with a free market.
Their business requires them to perform this function, and if they can’t do that because they’ve run out of their own money with which to underwrite these trades until settlement, then that’s very much a crisis of liquidity however you slice it (which you can’t because, you know, liquid. Badum-tisch).
Their business requires them to perform this function, and if they can’t do that because they’ve run out of their own money with which to underwrite these trades until settlement, then that’s very much a crisis of liquidity however you slice it (which you can’t because, you know, liquid. Badum-tisch).
Their messaging around this has been a total self-own. I don't know whether they're trying to protect their relationship with the DTCC or something else, but Vlad's lack of clarity understandably makes most people blame RobinHood.
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Robinhood canceled my GME calls orders at 1am and sent a message confirming that I canceled them (I didn't). Doesn't matter if they're technically in their rights or not the trust is shattered and I'm closing my account. Everyone else even in IRL spaces agrees with the sentiment. Anecdotally my barista at my local coffee spot told me to move to Webull or another platform so the sentiment seems to be widespread.
Isn't the saying that if your taxidriver or shoeshiner starts talking about the stock market, it is time to get out?
Do we need to add barista's to the list?
Do we need to add barista's to the list?
My bet is that this will be lasting to the point where Robinhood will need to change name. Out of the things people are a bit careful with and want full control of, their own money is distinctly one of those. The Robinhood story as it being describe include both forced sales, as well as not being allowed to user their money to buy stocks. Both seems pretty scary to would be new customers as well as existing ones.
> Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users.
I would imagine most users care more about money and convenience than principles. I doubt they lose many users in the long run.
If the bubble or market crashes though they will lose a large user base for a long period of time.
I would imagine most users care more about money and convenience than principles. I doubt they lose many users in the long run.
If the bubble or market crashes though they will lose a large user base for a long period of time.
I think many users feel that RH affected both their money and convenience
As long as Robinhood offers excellent UX, people will return. Look how many claims over Facebook's digital privacy, including companies boycotting Facebook, and yet people still use it now. Good UX is hard to beat.
Within 2 hours of this happening I personally know of at least $2m leaving robinhood accounts. Everyone (and I mean literally everyone) I know that used robinhood are closing their accounts.
Where are they moving to?
I agree. They're in big trouble after this. I think a lot of people actually will switch. If they really have an IPO after this, expect a lot of madness.
They did shoot up in the app store during this negative publicity. It could be that a vocal minority just don’t matter.
They shot up earlier in the week of the publicity because it wasn't negative right then and they were the business of choice for the user of wsb. All meme stocks were being bought using this.
On Thursday and Friday was when the publicity turned negative.
On Thursday and Friday was when the publicity turned negative.
freetrade in the UK might be worth looking at for an example of a business trying to repair their brand.
They basically said they were deeply sorry, didn't try to cover up and blamed their bank and clearinghouse.
They basically said they were deeply sorry, didn't try to cover up and blamed their bank and clearinghouse.
So where do those friends plan to migrate to?
They would have gone out of business if they did not restrict trading and GME went back down to the 20-40 USD range though.
Would they have gone out of business if they had suspended trading as opposed to suspending just buying?
Selling helps them cover all the loans they gave out to pretend that buying / selling stocks is instant (and depositing money). The clearing house they use dramatically increased the collateral needed due to market volatility and they basically did not have the cash. They literally had to go raise another billion dollars in funding over night to cover costs.
there isn't going to be an exodus.. just a whiny minority complaining they cant bankrupt themselves
Please stop posting flamebait and/or unsubstantive comments to HN. You've done it repeatedly and we ban that sort of account.
https://news.ycombinator.com/newsguidelines.html
https://news.ycombinator.com/newsguidelines.html
They are the number 1 app in app stores right now. People are morons. They're not going out of business anytime soon.
They are the #1 app because people were interested in trading GME, and the network effect led to lots of recommendations to download robinhood. Now there is a very negative sentiment towards robinhood. Very few people online will recommend it.
Worth noting that Webull, a robinhood competitor, is the #2 app in the play store. They initially restricted stocks but later allowed people to freely buy and sell.
Worth noting that Webull, a robinhood competitor, is the #2 app in the play store. They initially restricted stocks but later allowed people to freely buy and sell.
And I think more importantly, Webull said from the beginning what the issue was and communicated their efforts to fix it. Robinhood put up a blogpost that made it sound like everything was their choice and then went completely silent the entire day.
To be honest, people will eventually return. RH is the cost leader by a wide margin and its very unique to its business model via data arrangement with Citadel. In aggregate, total savings they pass down to retail traders is in the billions. With options trading at all time high, savings for 2020 was likely in tens of billions.
Edit: upon looking at some aggregate data via OCC, appears I overestimated savings.
Edit: upon looking at some aggregate data via OCC, appears I overestimated savings.
Almost every single broker offers commission-free trading now.
And some of them (Fidelity, Vanguard etc.) didn’t pull trading when it got volatile. They also have far more stable platforms.
And some of them (Fidelity, Vanguard etc.) didn’t pull trading when it got volatile. They also have far more stable platforms.
I think it’s also important to mention that Robinhood also has the most brain dead simple UI out of all the trading platforms I’ve seen.
The brokers you’ve listed have more complicated user interfaces than the casual trader would care to learn about. Fidelity and Vanguard also probably care way more about their reputations than to gamify their platform like RH does.
The brokers you’ve listed have more complicated user interfaces than the casual trader would care to learn about. Fidelity and Vanguard also probably care way more about their reputations than to gamify their platform like RH does.
What costs are they leading in? Stock, ETF, and mutual fund trades cost nothing on all the major platforms. (Maybe not options, but most people shouldn't be trading options, as they all just learned.)
Don’t Fidelity, E*TRADE, Ameritrade, and just about it everyone else have zero commission trades now?
Not on options
While technically true, I wonder if people care much about a $1 fee on an entire contract (100 shares).
The fee can still be very significant, especially once you engage into complex options strategy (e.g. call spread / put spread / iron condor). That tends to trade in significantly larger quantity (e.g. you can have a 50x call spread), in which the fee is now $100 ($50 for buying a call and $50 for selling another call).
Most of the time you'd be trading more than one contract, though. Say you want bet on cheap out of the money options, you could easily see a commission of $10 - $50 on a single trade if you buy up a bunch of them.
I guess if you’re buying lottery tickets at $.01-$.02 per contract it’s be a 50-100% change in costs.
I don’t use Robinhood so forgive my ignorance, but what savings are you referring to?
That trading stocks on it and all of its features are free, no fees and no commission.
You are still getting a hidden fee on most transactions due to the sold order flow. Rh itself earns 17 cents per 100 shares and 58 cents for options. The loss for the user is certainly much higher though and as the cost is hidden they likely make more trades.
https://www.google.com/amp/s/www.cnbc.com/amp/2020/08/13/how...
https://www.google.com/amp/s/www.cnbc.com/amp/2020/08/13/how...
RH is the cost leader by a wide margin and its very unique to its business model via data arrangement with Citadel
It’s free right up until the point they decide to charge you 100% of your money.
It’s free right up until the point they decide to charge you 100% of your money.
Now I see the value of Bitcoin and Ethereum. Can we build an exchange on Ethereum? Maybe handling high number of transactions will still be a problem. Can we accept the delay for the benefit of decentralization?
Can anyone with Robinhood confirm what kind of agreement this is? Is it just a EULA? Obviously IANAL, but I cannot see how such agreements are legally binding if they don't even require a signature.
In a theoretical world where I had to sign a EULA, I'd never sign any of them and I imagine most people wouldn't either.
In a theoretical world where I had to sign a EULA, I'd never sign any of them and I imagine most people wouldn't either.
If it were Robinhood suing users users over their terms or user agreement, then arguing that there is no contract might be a good defense.
This is the other way around. It is the users suing Robinhood claiming that Robinhood violated the contract by not making the trades. If the users established that there is no contract, they would destroy the foundations of their own case.
This is the other way around. It is the users suing Robinhood claiming that Robinhood violated the contract by not making the trades. If the users established that there is no contract, they would destroy the foundations of their own case.
I checked the Robinhood tos and it looks like they have a forced arbitration clause anyway. I'm not sure why the class action efforts thought they could get anywhere.
That said, I'm pretty sure you could make Robinhood fold if the users all bombed them with arbitration filings.
That said, I'm pretty sure you could make Robinhood fold if the users all bombed them with arbitration filings.
Who is trying to sue Reddit for this? Bringing them up just sounds like building a case for repealing Section 230 of the DMCA, which would be a disaster but nevertheless seems to have bipartisan support.
I'm all for it at this point - it will push to decentralized infrastructure, which the Internet was meant to be in the first place.
Decentralized infrastructure with equal access is the solution to avoiding legislation here, people should be able to access the public forum and markets and companies should have the right to not associate with individuals not protected by human rights laws. Technology can solve this, and we are seeing money being spent towards this decentralization flooding towards building it just in 2021 alone. Interesting to see how a battery of solar houses + starlink + a drone port could allow decentralized communes to start popping up.
I think this will not go the way you want it to. Powerful interests will certainly portray decentralized communication tools as refuges of terrorists and child predators. They may even succeed in passing legislation that targets them. It will be easier if they're riding high on the momentum of successfully "striking at bad actors, forcing them to flee to other platforms" by repealing 230. "All for it" is a good zinger, but a bad plan.
Just to be clear, the DMCA is not the law you're thinking of:
"Section 230 is a piece of Internet legislation in the United States, passed into law as part of the Communications Decency Act (CDA) of 1996 (a common name for Title V of the Telecommunications Act of 1996), formally codified as Section 230 of the Communications Act of 1934 at 47 U.S.C. § 230."
https://en.wikipedia.org/wiki/Section_230
"Section 230 is a piece of Internet legislation in the United States, passed into law as part of the Communications Decency Act (CDA) of 1996 (a common name for Title V of the Telecommunications Act of 1996), formally codified as Section 230 of the Communications Act of 1934 at 47 U.S.C. § 230."
https://en.wikipedia.org/wiki/Section_230
Oops, thanks.
I have mixed feelings about this. On the one hand, I'm upset that centralized control led to big tech being able to so easily squash ideological competition (Parler and NY Post, and I am no ally of these, as well as stuff on the left and many individuals), and I want to see some sort of government whip-cracking. On the other hand, if they repeal 230 and everyone is afraid of lawsuits, then you'll see comments disappear everywhere, content disappear everywhere, freedom to publish diminish, and not platforms but content itself be centralized to that which is 'approved.'
That doesn't actually sound mixed w.r.t section 230, more like a very clear statement that a different solution is needed.
These complaints need to reframed in terms of the sellers of the extremely underpriced call options that triggered the insane volatility in the first place. There are only a tiny number of companies responsible, possibly as few as one
Robin hood users certainly weren't clicking around a UI buying stocks fast enough to cause the incredible moves witnessed, that could only be the action of the option market makers attempting to hedge options they'd sold to those users with a notional value vastly exceeding available liquidity
Robin hood users certainly weren't clicking around a UI buying stocks fast enough to cause the incredible moves witnessed, that could only be the action of the option market makers attempting to hedge options they'd sold to those users with a notional value vastly exceeding available liquidity
Robinhood would be liable for any margin accounts that were unable to settle their balances by the end of the allotted term. It's very reasonable that they restricted trades based on their liability.
Did it have the deleterious affect of negatively impacting anyone long on the stock, probably. But, was that the primary rationale? It'll have to come out in discovery.
Did it have the deleterious affect of negatively impacting anyone long on the stock, probably. But, was that the primary rationale? It'll have to come out in discovery.
The fact that they’ve not only limited trading in GME but low volatility name like Starbucks to 1 share is ridiculous. If the only outcome out of this is collective realization about issues with Section 230 or forced arbitration that is a positive whether this class action becomes anything or not.
A second collective realization I'd like to see is that the SEC is still using the same faulty Value-at-Risk model they were using before the 2008 crash to estimate clearing funds. They should probably not use this model to do this any more.
See https://www.sec.gov/rules/sro/nscc-an/2018/34-82631.pdf and explanation at https://twitter.com/MKM_Abdul/status/1355310540235579395
See https://www.sec.gov/rules/sro/nscc-an/2018/34-82631.pdf and explanation at https://twitter.com/MKM_Abdul/status/1355310540235579395
I'm not sure why this article talks about reddit at all. I'm not aware of anyone suing reddit or even considering it (unless the hedge funds plan to do so?).
It seems like they just wanted an excuse to write an article about Section 230, or had already written it when it was a big topic earlier in the month and wanted to use what they wrote elsewhere. :)
It seems like they just wanted an excuse to write an article about Section 230, or had already written it when it was a big topic earlier in the month and wanted to use what they wrote elsewhere. :)
Can someone explain the following to me.
Normally brokers block all trading ( buying/selling).
But only blocking buying it, seems manipulation to me.
Normally brokers block all trading ( buying/selling).
But only blocking buying it, seems manipulation to me.
This headline writing pattern is goshdarn atrocious.
This makes sense. Financial terrorism cannot be tolerated
But it is on wall street every weekday.
I'm glad I left RH about a month ago because I didn't even suffer from their non-sense (I left 2 weeks after I signed up). I left them because I didn't like their website/interface.
Forced arbitration has always felt grossly unfair, but for the sake of argument, I'll consider the contrapositive. A company that is in a highly litigious industry may feel that lawsuits would eat up valuable time and resources, and that those lawsuits are not always filed in good faith. Perhaps the industry or subject matter is complex, and not easily understood by juries, courts, etc. From a business perspective forced arbitration makes perfect sense: It limits exposure, limits judgement amounts, and perhaps is more predictable than trials.
All that sounds good from the business perspective, but my problem has always been that the outcomes seem tilted grossly in favor of the company. Like Human Resources, it's there for the company, not the employee/consumer, and its the companies that have to pay for the arbitration. Banning them does not seem like a long term solution, although I support it, so I'm curious what alternatives may exist that could accomplish both.
All that sounds good from the business perspective, but my problem has always been that the outcomes seem tilted grossly in favor of the company. Like Human Resources, it's there for the company, not the employee/consumer, and its the companies that have to pay for the arbitration. Banning them does not seem like a long term solution, although I support it, so I'm curious what alternatives may exist that could accomplish both.