Class Action Lawsuit Filed Against Robinhood
yumpu.comFor pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543.
The earlier thread about class action is https://news.ycombinator.com/item?id=25945447. Not sure if these are the same class action or just the same class action class.
The current thread is paginated like all the other big threads. If you want to see all the comments you'll need to click through the More links at the bottom, or like this:
https://news.ycombinator.com/item?id=25947814&p=2
https://news.ycombinator.com/item?id=25947814&p=3
(and so on)
This lawsuit will go nowhere. At best a tiny settlement after years of litigation. Congress will have a few hearings for show, so reps can get face time and claim to be "for the people". SEC will wag their finger, might even levy a few hundred thousand in fines.
Citadel and gang operate this casino. If they think they're losing, they change the rules so they aren't.
What it tells me is that they're getting increasingly desperate if they're willing to brazenly manipulate the market like this. Seems like they didn't close out their short position, like they claimed they had 2 days ago. It'd be interesting to see if the casino wins this game.
If that's the case, then the cost of violating rules for them is trivial enough that they can simply just keep doing this: 1) pump a stock price by allowing buy but restricting sell, 2) then they short this stock to 100%+, 3) they allow sell but restricting buy to collapse the price.
Is the society already working this way?
I expect a larger cost from violating the trust of their customers. They'll lose many and if they do grow, grow more slowly. It's an advantage to their competitors.
What is actually interesting to me is that it would be shocking of Robinhood didn't anticipate getting sued over this. It smells and looks like halting trading because their owners didn't like the result.
Maybe the lawsuit will fail, but they will obviously take a giant reputational hit and it is fascinating to me that they chose to do that. What is the upside? The only thing that makes sense to me is that the owners of Robinhood have too much conflict of interest with the hedge funds that were losing money (and so are acting against the best interests of Robinhood itself in favor of their funders).
Alternatively, maybe they're being honest about it and what's going on at this point has nothing to do with hedge funds and everything to do with what appears to be a scheme to pump up the price and the people that are controlling the narrative sell first.
It's unclear what hedge fund is getting it stuck to them at this point, didn't they say they covered their position already?
If that is true, then it really does start to look like what started as an interesting way to penalize hedge funds doing this has turned into a bitcoin-style bubble. Which can also be a useful point to make, but a point that is completely disconnected from the desire to screw over hedge funds.
Cryptocurrencies are also extremely volatile but I don't see them disabling the "buy" button when the prices shoot up.
I personally am going to switch away from them to some other brokerage. Their app is very well made though so I hope the competition catches up
You must not be familiar with several exchanges including Coinbase doing this exact thing a few years ago. Cryptocurrencies still have to go through an exchange, usually.
I think Robinhood was faced with either doing this and getting sued or losing a huge amount of revenue from Citadel, which paid them to front run their users.
Lesson: don’t have an evil business model because it will catch up to you.
So, my non-lawyer, worked-in-finance-software-but-not-actually-trading layman's understanding of the situation is that:
1. The problem with RobinHood's behaviour here, is that they are doing price manipulation (By only allowing sells, instead of buys.)
2. Price manipulation isn't really a crime against their customers, it's a crime against the stock market. Their customers will sue them, but probably won't get much. It's a bit hard to make a case for "You stopped me from trading, when I was planning on making a lot of money from trading, by cashing out right before a bubble popped."
3. The SEC is supposed to deal with crimes against the stock market. They may or may not sanction RobinHood, but I doubt the sanctions will be serious.
4. The SEC might look into the obvious collusion problems, where the owners of the GME shorts may have reached out to the exchanges/settlement networks, and tried to block retail traders from buying GME. This may or many not result in financial penalties. Even if sanctioned, this may be worth it for the owners of those shorts, because the alternative is bankruptcy, complete financial ruin, and the sale of their children, their grandchildren, and their great grandchildren into sixty years of bondage.
5. Your thesis is sound, but the SEC works with, and for large players in the market. Those players want a mostly-fair market. If the counterparty on the other end of these trades were not retail morons on reddit, the SEC might be a bit more heavy-handed in their enforcement. The thing is, most price rallies are not driven by retail morons on reddit... So, if your business plan consists of "Short a stock to 100%, then call up all the exchanges and settlement networks, and tell them to only allow you to buy stocks," there's going to be a lot of really wealthy counterparties to your trades, who are going to be really, really pissed, and you will probably lose all your money and go to jail.
#5 is unlikely to happen here, because the narrative around this is 'Ha, look at all the dumb retail money driving a bubble, we are just deflating it before retail traders get burnt.' And that narrative is partially true, which is why it's making the news cycles, and serious talking heads on the television repeat it with a straight face.
... Also, I would like to point out that there is nothing wrong with shorting a stock, or shorting a stock past 100%. Yes, it can trigger a short squeeze. No, I don't really think there should be rules against it, or against short squeezes. These are institutional investors, who surely must understand that short-selling a stock carries unbounded risk. If they wanted bounded risk, they should have bought puts.
Robinhood sent this email not long ago to me, but this also seems to be inline with what analysts on TV were saying, basically they very likely had to halt trading because the company may not have been able pay its obligations if it didn't temporary suspend these volatile trades and possibly become insolvent.
> As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.
> To be clear, this decision was not made on the direction of any market maker we route to or other market participants.
> Robinhood sent this email not long ago to me, but this is also what analysts on TV were saying, basically they likley had to halt trading because the company may not have been able to exist and pay its obligations if it didn't temporary suspend these volatile trades.
I smell bullshit. These are long positions, these aren't options, or trades on margin. Robinhood, and its settlement network (As well as other exchanges, who have stopped retail traders from buying GME) carries effectively no risk for settling buys and sells in them.
Here is what I saw this morning and what I'm referencing: https://youtu.be/LAHLifZzKmg?t=170
Basically so many shorts were sold, way more than what exists when trying to cover them, the cover would fail, the clearinghouse would raise the margin rates of Robinhood so much if this kept happening that it would cause them to go out of business.
I'm not entirely sure if I'm the idiot, or if the talking lady on television is, but what she is saying sounds like complete nonsense.
It sounds like nonsense, because what she's describing is not Robinhood's problem. The shorts are predominantly being done by hedge funds (with only a few retail investors here and there). Hedge funds aren't trading on retail platforms, like Robinhood. It's not Robinhood's problem that the hedge funds are being eaten alive on margins, or if the hedge funds are having problems with the clearing houses.
If margins, and the Robinhood/clearing house relationship were the problem, then Robinhood would stop people from opening new margin positions on GME. But that's not the case, here. They are preventing people from entering non-margin long positions.
Do you have a different take on this?
Edit: https://news.ycombinator.com/item?id=25951475 seems to be a different take on this. One that makes a lot more sense then the lady on television. The tl;dr of it is that even for a simple, non-margin stock trade, RobinHood needs to put dollars up as collateral... And they ran out of dollars.
> The SEC is supposed to deal with crimes against the stock market.
They identify (possible) crimes, the Justice Department deals with them.
The SEC only “deals with” civil wrongs, not crimes.
> They fail to identify crimes, and if somehow they failed to fail, the Justice Department fails to deal with them.
There, fixed that for you.
The question is why did they do it? What did they have to gain by risking their customer base?
I am pretty sure that Wall Street is full of manipulation and insider trading.
This kind of blatant manipulation is the first time. And yes if they get away with it, chances are that they will do more of it.
Wall street tries be subtle most of the time, but in reality this is what they do everyday. Think about it: the big companies (Morgan Stanley, GS, BofA, Ameritrade) are selling stock to retail customers, and they know for a fact what companies people are selling/buying in volume each day, so they can make trades confident that they will make money. Nobody outside this group has direct information about the sell/buy levels of each stock, so this is a rigged game for them.
> Nobody outside this group has direct information about the sell/buy levels of each stock
Order books have been nationally integrated since 2005 [1]. This is how independent HFT firms got their start.
> so they can make trades confident that they will make money
this would be illegal. Any evidence this happens?
> Is the society already working this way?
Remember "too big to fail"?
>> This lawsuit will go nowhere... increasingly desperate if they're willing to brazenly manipulate the market like this.
IDK... I'm probably missing something about norms or precedents, but allowing selling and not buying is not just brazen. It's straightforward enough that the average person is incensed and understands specifically why. This isn't systemic risk and turtle stack complexity.
This is probably my info-bubble, but nihilistic rage of WSB seems to be spilling out into the world. The social media (dischord/reddit) aspects, hedge funds, markets/brokers... it all adds up to symbolic whole that has ordinary people cheering on a bunch of maniacal gamblers. The SEC is looking more like a belligerent than a regulator.
Remember that the SEC is, first and foremost, a bunch of cowards.
“nihilistic rage of WSB seems to be spilling out into the world”
I think it’s the other way round - there are millions of people who feel disenfranchised, cast away, left behind. Their rage has been manifesting in events such as Brexit & the election of Trump. Currently the most visible expression is the GME saga, but the undercurrent of rage is the common factor & I expect it will be more common & more obvious over the next few years, as the elites try to pretend it’s back to business as usual.
> manifesting in events such as Brexit & the election of Trump
I want to agree with you, but I have to say that some of the most rabid Trump supporters I know are fellow software engineers earning at least $150K a year, and sometimes much more. What do they feel disenfranchised about, cast away, or left behind?
I agree that it's part of the explanation, but it seems to me like there's far more than that going on.
You can empathise with the disenfranchised.
Not all BLM supporters are black.
I don't think all Trump supporters (or all Brexit voters) feel disenfranchised. My point is there are a large number of people who do feel discarded by the "system", and when given the opportunity to metaphorically throw a brick through the window of the establishment (or even the appearance of such opportunity), they will do so.
Friends of mine with $1k in are talking about how brazen this is. It's a funny cultural phenomenon. $1k is insignificant. They have $500k+ portfolios!
It probably isn't about the quantity. Its about the shamelessness, or perception thereof
>Citadel and gang operate this casino. If they think they're losing, they change the rules so they aren't.
Wait, is Citadel a big enough player as to influence the regulatory system, like on the level of JP Morgan or Goldman Sachs?
> is Citadel a big enough player as to influence the regulatory system, like on the level of JP Morgan or Goldman Sachs
No. They barely avoided going out of business the last time around.
Sounds exactly like JP Morgan and Goldman Sachs.
> Sounds exactly like JP Morgan and Goldman Sachs
I don't think JPMorgan needed any government intervention. Goldman didn't directly, but if AIG had gone under so would they. (To be fair, so would the entire financial system.) But in the end, both of them got help.
Citadel didn't. It wasn't in that club. It is not now. If Citadel failed tomorrow, it would make headlines for a week, and then we'd move on.
That's what you might think, but since the Volcker rule, a lot of the kind of 'liquidity provision' (aka trading) done in the banks has now been forced into funds like Citadel.
Meaning 'too big to fail' applies to hedge funds now just like investment banks. Ala LTCM
> Meaning 'too big to fail' applies to hedge funds now just like investment banks
LTCM wasn't making markets and it was done in by leveraged bets on Russian bonds.
The term you are looking for is systemically important financial institution (SIFI) [1]. BlackRock, with $9 trillion under management, is a SIFI. Citadel, with under $40 billion, is not.
[1] https://en.wikipedia.org/wiki/Systemically_important_financi...
Goldman received $10B in CPP funds on October 28, 2008 and repaid it on June 9, 2009.
JPM received $25B in CPP funds on October 28, 2008 and repaid it on June 9, 2009.
Aside from CPP, any bank that had assets affected by TARP purchases -- or by the potential that follow-on programs could affect those assets -- had its balance sheet ballasted in one way or another by government intervention.
All of the banks that survived will say they didn't "need" government intervention, for the same reason that they don't like to borrow from the discount window: it looks desperate to take help from the government. But technically both of those banks received an injection of liquidity via TARP.
Wait, I thought Goldman came out ahead from the crisis.
They had the, "we didn't avoid the mortgage mess, we just made more money on shorts than we lost" and "we are very well positioned" emails that became evidence in the Senate investigation into the GFC. The ones are the namesake for the book/movie The Big Short.
As soon as they had a big enough short position and unloaded their long is when the spiral happened. They were the ones setting the swaps prices since they were the biggest market maker for mortgage backed securities.
The issue isn’t citadel it’s all these hidden connections in the secondary market where they get the money to leverage up. I bet we will find out in the end the reason they are panicking is the repo market where they likely got the money to leverage.
I am less cynical or more optimistic. What they did is one of the most egregious acts of malfeasance I’ve ever seen in the markets. If there was ever a case for punishing a company, this is it. If the powers that be fail to do so, then get out the pitchforks and guillotines because this society is beyond fixing.
I think there's basically 0% chance that there are any real consequences to anyone except the people trying to make trades on Robinhood.
>SEC will wag their finger
I think SEC greenlighted what in my view amounts to a highly illegal action by Citadel/Robinhood (as i think Citadel still has exposure, probably indirectly, on the short side). The situation in its nature does look like the CDS calls which caused the 2008 crisis. I think some "too big to fail" players wrote a humongous amount of GME/etc. uncovered calls (and similarly structured contracts) in the previous months which now threaten to take them down. I mean writing the $100-200 GME calls were practically free money back then while these days it has materialized as the tens of $B liability. Similar to CDS - the statistics practiced on Wall Street permits to have tremendously huge potential liability if it is at a very low probability. When such a low probability event happens though ... hopefully you're too big to fail and the system would then step in to save you by socializing your losses in some way.
So, before going outright bailout road which would be tough politically, i think big people decided to try to spread/socialize that "too big to fail" players' loss among the retail investors, and thus the stock buying block for retail investors (i'm voting with my dollar - have a bit of long of AMC).
With Gary Ginsler at the SEC, who knows?
Please keep in mind that by continuing to allow trades, Robinhood was taking on major legal risks.
People have been attempting a short squeeze all week. Short squeezes are illegal. By allowing a short squeeze to continue with no action, Robinhood would have been taking on massive legal liability for aiding and abetting illegal activity.
They absolutely are not illegal.
Shorts got greedy and got caught out. Should short sellers not have any downside to their trades?
https://www.sec.gov/investor/pubs/regsho.htm. Control plus F "short squeeze". Intentional short squeezes like what is happening in GME is illegal.
Thank you, I’ve been reading about this all day but this is the first time I see this referenced.
I guess the billion dollar question is, legally: does buying stocks in anticipation of a short squeeze, and communicating the same to others, count as manipulation?
> a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.
The question I think would rotate around whether this is 'a scheme to manipulate', or simply identifying an opportunity to capitalise on Melvin's greedy position.
> capitalise on Melvin's greedy position
Oh please. As if whoever has their thumb on the social media scale isn't greedy. Greed runs the street in longs and shorts. You can invest modestly by diversifying and avoid all that.
Of course. But the point I'm making is that in my opinion, the demand is being generated by Melvin themselves by having a position with so much risk, it's not artificial demand.
Intentional would be the key word. Would it be easy to prove it was intentional?
I don't know enough about this subject to form an opinion on the legality and morality of what's hapenning right now but if the only rub is whether the squeeze is intentional or not I recommend that you have a peek at the wallstreetbets subreddit right now. It's very much intentional and out in the open.
very interesting link, thank you. The exact language is
> Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.
It seems like the key question is what qualifies as a scheme. To me, it seems like you need some kind of secrecy or deception.
Also, can you use Clojure to cause a short squeeze, or... [ducks]
Indeed. It was all done out in the open. Someone said "if enough people buy and hold, there will be a short squeeze. For this reason, I'm long GME", which probably doesn't represent a scheme or manipulation, it's just simple facts.
The article doesn’t explain why it’s illegal.
It doesn't need to?
A short squeeze by itself is not illegal. It is illegal to make trades whose sole purpose is to manipulate the price of a stock, though.
This is true. But if you read Reddit and Twitter this week, everyone is making the case to buy and hold to put pressure on short positions. This is an illegal short squeeze.
I can't find any evidence that a short squeeze is illegal. (https://duckduckgo.com/?q=illegal+short+squeeze&t=ffab&ia=we...)
Also: If a big hedge fund shorts a stock, expecting to drive its price down, that's cool. (Search "big short drives down stock price")
But if regular people buy a stock expecting to drive its price up, that's terrible.
Sorry, this position just isn't credible.
Shorting in and of itself has a builtin risk/reward scenario. You're betting on the company's future performance. What's happening here is that people saw that some investors went overboard with shorting, so they started pumping the stock in order to extract money from said investors. Nobody actually cares about Gamestop's actual worth as a company, it's just a metagame effectively. Once the play is over the stock will collapse back.
I don't know if it is or should be illegal but I can see why it raises some questions.
> Shorting in and of itself has a builtin risk/reward scenario. You're betting on the company's future performance.
No, you're betting on the stock's future performance, not the company's future performance. There's an ocean of difference between the two.
If the company does poorly, but the stock price rises, or stays the same (Say, because we're in the middle of a COVID recession, and the printing presses are working overtime), you're going to lose a lot of money.
> Nobody actually cares about Gamestop's actual worth as a company, it's just a metagame effectively.
How do you know that everyone who bought it actually doesn't care about Gamestop's worth? There isn't really any way to prove that every single person (or even a majority of people, or really even a good portion of the people) don't care about GameStop's success and are solely doing it as a metagame.
Well there's the rub, we do need proof and that takes investigation. It's obvious what's going on but we will need to wait for whoever is conning this to leave a trail. It's just a matter of time.
What proof? I'm serious here.
Sure, there's threads on WSB about this, but there's no real way to tie that to actual transactions, and not everyone who has bought stock even contributes to that subreddit, let alone the specific threads about this.
Furthermore, all it really takes is someone saying "I bought stock because I believe in the company". We don't have thought police; unless someone explicitly posts "I, RH account XXX, bought the stock in a concerted effort to short it" there's no real way to prove intent.
I've no idea if any proof can be found in this case. I just know that if someone has won big off this they're likely to continue doing it until caught.
What's wrong with buying a stock you like and never selling it because you like the stock itself? Etherum's NFTs are entirely built around this idea.
What statutes establish the criteria for manipulation?
I heard (from a non-authoritative source) that the coordination on reddit, etc. is not manipulation.
You are continuing to comment, directly or negligently, misinformation without sources.
Please source the following comment:
> by continuing to allow trades, Robinhood was taking on major legal risks
There is no one else sharing this talking point that I can see.
I will continue to call you a shill. Please see my comment history to understand that this user is quite interested in spreading misinformation, and given their previous topics, looks to be being compensated for doing so.
Short squeeze is legal. What are you talking about?
> Please keep in mind that by continuing to allow trades, Robinhood was taking on major legal risks.
Obviously not the reason, since they posted a blog saying they did it to protect consumers from volatile stock.
Wait, this is a pretty gigantic claim that needs some backing. There are examples of the SEC instituting temporary bans on short-selling, but this is the closest thing I can find to your claim.
https://www.sec.gov/investor/pubs/regsho.htm. Control plus F "short squeeze". Intentional short squeezes like what is happening in GME is illegal.
> Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.
It says market manipulation is illegal. It is not particularly clear whether a message board getting excited about a short squeeze does not count as something that "may occur naturally".
They did it because they can't meet their collateral requirements. The fact that they're in bed with Citadel, which owns Melvin Cap., just makes it that much worse.
> they're willing to brazenly manipulate the market like this
Evidence? The interview below (with CEO of broker Webull) claims that the clearing firms cannot (or don't want to) cover the increased cost when clearing these trades, and told many brokers that they won't open positions anymore, due to the two day settlement delay.
In other words, an entirely innocuous explanation.
Does citadel clear their own trades?
I could be off here, but what I'm asking is getting at like if they are on all the sides of the transaction as market maker, participating or allow others to participate in 'betting', and clearing the trades themselves? Does a trade even need to clear if it's just moving internally changing col A owner ID from 1234 to 9999?
Where are all the HFTs looking to take a rake for "creating market liquidity"
Sure looks like a rigged game to me.
> “It’s not really Robinhood doing nefarious stuff,” said Bloomberg Intelligence analyst Larry Tabb. “It’s the DTCC saying ‘This stuff is just too risky. We don’t trust that these guys have the cash to be able to withstand settling these things two days from now, because in two days, who knows what the price could be, it could be zero.’”
https://www.bloomberg.com/news/articles/2021-01-29/for-robin...
Can you explain why buying GME was more costly for them? I don't undestand that.
if hedge funds were long, it would have happened?
it is short-sellers who need to pay up the margin calls etc. the way short selling works, it can create crazy leverage
it is definitely a lie
> if hedge funds were long, it would have happened?
Yes. DTCC changes collateral requirements on securities all the time [1]. The collateral requirements they put on GME aren't even that egregious. Robinhood just didn't want to pay up.
[1] Literally, every day. But the haircuts they apply to the last day's market prices are also quite variable.
What does DTCC collateral requirements have to do with retail investors trying to buy shares in a cash account?
Stopping margin trading, absolutely. Stopping short selling, of course. But we’re not talking about either of those things. We’re talking about cash-funded limit Buy orders on a duly listed publicly traded stock.
> What does DTCC collateral requirements have to do with retail investors trying to buy shares in a cash account?
See [1].
Long story short: Robinhood lets you buy and sell a share instantly. In the real world, those trades take days to settle and clear. To bridge the gap, Robinhood loans you the difference. And Robinhood, in turn, is "loaned" [2] some of that difference by the DTCC.
So when the cost of that loan goes up, their costs go up, and they responded to that cost pressure by turning off trading. (There are other options.)
[1] https://news.ycombinator.com/item?id=25950361
[2] In quotes because it's technically a collateral requirement. If you sell $100 of stock, DTCC may tell Robinhood it only needs to put up $2 of stock as collateral while Robinhood gets the rest from wherever it's getting it from so it can pass it along to the next person. The $98 is "loaned," as in it's owed to DTCC. If Robinhood fell down, DTCC would sell that collateral and buy the rest of the shares in the market. In this case, DTCC said "these shares are super risky, and may lose all their value in a heartbeat, I need you to hand me 100% of the shares you say you are selling when you sell them." And Robinhood said no. Because that's expensive.
[a] DTCC says put up $100 per share because DTCC is not a lender either! It has lines of credit with various banks. And the banks bear the risk of the loan defaulting. So they're setting their rates and then DTCC draws from the cheapest line.
If you buy and sell shares within the same day three times in 5 business days, you will be flagged as a “Pattern Day Trader” and you’ll need to post at least $25,000 of collateral.
I don’t think the problem here was with too many trades. Very few Robinhood accounts overall have over $25k balance.
I guess I can’t see where the risk is. Shares are moving electronically between different ledgers as orders are fulfilled. Shares aren’t being created or destroyed, nor is money.
I can definitely see how you could end up with large net cash flows that need to settled over the next 48 hours, if Robinhood accounts are collectively gaining or losing huge percentages of their value from one day to the next. But I don’t see, absent allowing margin or naked options, how they could ever end up owing more than they actually have on hand in their custodial accounts.
I would possibly believe that Robinhood didn’t have the technical controls the fix the problem that they were having the “right” way, and had to resort to their “least worst option”.
For example they should have the technical controls to flag specific sales to prevent those funds from being reinvested until the particular sale settles. By free and clear settled cash should be able to buy any publicly listed share it wants.
> Shares are moving electronically between different ledgers as orders are fulfilled
Ah, this is the disconnect.
They're not. Shares and payment for them move within two business days [1]. In the meantime, both sides must post collateral as a guard against their failing to deliver.
You're a broker. Suzy has $20 in her account. Suzy sells a share for $10. She buys another share for $10. With the first trade, you have to post--today--collateral against that $10 for two days. With the second trade, you have to post--again, by close of business today--collateral against that $10 for two days. To keep things simple, let's assume Suzy did not use the proceeds from the first sale to finance the second. That leaves you with $20 of liabilities and $20 of cash.
Next day, Suzy sells all her shares for $40. Now you're putting up collateral against that $40 for two days. The $20 from yesterday still hasn't arrived from JPMorgan--they have until tomorrow. You now have collateral against $60 of liabilities. At the end of the day, Suzy makes a withdrawal request because she's a little shit. So now you have $80 of liabilities from someone who deposited $20 in her account and never had more than $40 of assets.
Clearinghouses use the last day's closing price to determine how much collateral you need to post. They then multiply that by some value that ranges between 2% and 100%, depending on what their line-of-credit lenders offer them. That is leverage. To manage that risk, the clearinghouse adjusts that multiplier. Going from 20% to 100% in the above example would mean going from $16 of collateral required to $80. That's $64 of cash you need to come up with before the end of the day or you're out of business.
If Robinhood operated with zero clearing leverage, they would not be able to offer the instant-trading experience their competitors have offered since the 1990s.
[1] https://www.investor.gov/introduction-investing/investing-ba...
This was an extremely eye opening thread. Thank you for explaining it in such clear and concise terms.
Thank you for discussing this and bringing your perspective.
Question, why are we operating near-real-time settlement systems for securities if it doesn't eliminate such risks? I don't understand why these transactions aren't being netted and conducted as close to real-time as possible.
This aspect of the economy seems like a significant vulnerability.
> why are we operating near-real-time settlement systems for securities if it doesn't eliminate such risks?
The firms that provided instantaneous-seeming settlement got the orders. And settlement failures were rare and correlated enough that avoiding them wasn't a differentiator. Then we got centralized clearinghouses and deposit insurance and the risk fell so far into the background that it's entirely novel to many market participants today.
> why these transactions aren't being netted and conducted as close to real-time as possible
It is technically difficult. It provides less room for correcting errors. And because real-time payment rails are fundamentally more expensive than batched rails, and if your payments aren't in sync with your settlement you've got a credit component somewhere.
> seems like a significant vulnerability
It does, but I don't think it is. Clearinghouses spread risk across a lot of people. They also help early identify daisy-chains, e.g. a single broker sold ten shares to ten brokers who then sold it to ten more fifty times and that single broker hasn't settled yet, and loops, e.g. I owe you and you owe Larry and Larry owes Bob and Bob owes me, of settlement risk. That's why Dodd-Frank moved many derivatives onto centralized clearinghouses.
That said, we've only had these since the 1970s. Counterfactual: we didn't have the technology to do this until the 1970s.
I've been studying the history of the settlement systems, and incidentally, this is a lesson learnt by each successive generation. https://news.ycombinator.com/item?id=25791646
A part of the reason why the Automated Clearing House system was setup was the collapse of Herstatt, which was a settlement failure that led to the global push for RTGSes.
It is not that difficult to imagine another such storm. A heavily shorted stock, where retail traders "rally" to stick to the man and buy + hold on to the majority of the stock in circulation. And then the shares left in pools + the open market aren't enough to cover everyone's position. Creating a cascading failure.
That is interesting. Thanks.
I’ve been looking at settlement also and am particularly interested in overnight Interest rates. https://en.m.wikipedia.org/wiki/Overnight_indexed_swap
This past years changes at the Fed for Central Bank Interest Rate Swap Lines and 9 new banks, which included Sweden and others. https://www.federalreserve.gov/newsevents/pressreleases/mone...
The dollar is running the world right now. Lots of demand even as, or maybe why, the value has been weakening. https://www.marketwatch.com/investing/index/dxy
Curious when the dollar running the world will begin to change. The US dollar and CN Yuan are the only countries keeping us with positive, basically zero, interest rates globally (See IMF SDR) https://www.imf.org/external/np/fin/data/sdr_ir.aspx
Lastly, Power to the Players! Still looking for more short squeeze on the GME shorts, would like to see them get pushed down to a reasonable level of the float (5-20%?). I’m holding.
There is no real-time-settlement for securities, AFAIK. They're settled two biz days later. RH, of course, seemingly settles things immediately vis-a-vis its retail clients. That creates the whole web (well, not a web, really, but a snow flake with a central counterpart which branch off again) of credit and collateral, which generally works extremely well, but comes to its limits with irrational price action such as this.
I don't see the lack of real-time-settlement as a vulnerability so much, but more the mismatch. But I'd suggest fixing it not by increasing the frequency of settlement, but by decreasing the frequency of trading (Tobin tax (which, funnily enough, is also called Robin Hood tax [1]); replace continuous trading with a couple of auctions a day; ???).
Quick note, settlement risk is indeed serious and I've covered it somewhere else.
Side note, I am against the Tobin Tax. I think public markets are more important than most folks believe.
I do believe that frequent trading is a good thing, as is retail participation in markets. One of the amplifiers of income inequality, I suspect, in the past few decades has been the fact that high-growth companies that normally would have gone public sooner have stayed private for longer, denying participation from the public market.
For example, a well chosen index of Dot Com stocks that included Amazon, Google, E-Bay etc. picked in 1998 would have, provided there was continuous investment and a long-hold, injected a large amount of capital back into the public and retirement systems, which would have helped lift all boats so to speak.
AMZN was originally at around $4/share (adjusted for splits, provided this data source is correct, https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-... ), if you had bought 1k stocks of the company in pre-2000, and held until now. Your originally $4k position would be worth 3.2M.
That's quite crazy. And it's retirement money for a lot of people.
Amazon's growth has occurred in the public, giving retail investors the ability to tap into the formation of new wealth. SpaceX's, AirBNB's, DropBox's etc hasn't. They're playthings of the well heeled. Not the gumshoes.
We need to re-orient public markets in such a way that everyone gets to participate in wealth creation. Not restrict it even further.
> I do believe that frequent trading is a good thing, as is retail participation in markets.
On the frequent trading, let's agree to disagree.
On retail participation, agreed. But I don't think that the Tobin Tax would inhibit it, but rather HFT and maybe day trading.
Fully agree that this new thing of companies staying private longer and longer is a bad development, with the best deals available only to the few connected and wealthy.
Thank you for your comments on this thread and others today. They have been very helpful in understanding what is actually going on.
I'm astounded by the level of expertise that visits HN. What good fortune.
Mate, you can't just walk in here with detailed knowledge and settlement mechanics and all. It's a revolution against the conspiracy! </s>
Citadel and gang operate this casino. If they think they're losing, they change the rules so they aren't.
Best investment money can buy is after-dinner speakers fees to people who then show up at the regulators.
>Congress will have a few hearings for show, so reps can get face time and claim to be "for the people".
That's the Congress of ten years ago. Today we have both parties reeling from a populist revolt and anxious to avoid another one (even as they cynically try to get as many points in as possible). Case in point: among the usual suspects tweeting we heard from one Donald Trump Jr.
I doubt that they'll do what WSB wants (whatever that is) but I think there's a relatively good chance of some significant legislation coming out of this.
Robinhood seems to have reversed on buying GME, though, at least for now, which pretty much invalidates the lawsuit (but doesn't prove it was useless).
Eh, if I dump shit all over your yard, then stop doing it, does me stopping invalidate the earlier event?
The real owners of the markets have showed up:
Various trading halts occur fairly regularly. If it's possible to win a suit against an exchange halting trades, institutional investors would be suing exchanges on a regular basis.
Also the creation of the SEC was essentially to protect retail investors from speculative investments (that typically cleaned them out). It would be less likely to see a trade halt as going "against the people" but as a consumer protection practice, so it's doubtful it will be wagging too many fingers at RH.
"halting trades" is not the same as "halting buys only while allowing people to sell in an attempt to crash the price so our biggest customer doesn't lose money"
It is. Halting trades always produces winners/losers.
Retail investors are RH's biggest customers. They're diminishing their risk of suits they'd likely lose/regulatory scrutiny by halting buys. The SEC will more likely hit you for allowing pumps rather than preventing them.
It's absolutely not the same
Trading halts are at the exchange level and stop _all_ buys and sells
What happened here is some brokers/clearing houses prevented _retail traders_ from buying, but not from selling
Exchanges are able to decide what to halt (obviously since that's what they did). The SEC/class action suits are free to argue the issue, but the likelihood the suit will succeed is low and SEC intervention (beyond an opinion statement) is also low. In the investment space, retail investors are generally treated like children who need to be protected (that's what the SEC is mostly tasked with). RH will make the argument that it was protecting the children from hurting themselves and the SEC will likely go along with it (that's their assumption anyway). Fairness isn't something you generally see in trading.
How is halting trades the same as only halting buys? By halting trades it is implied selling is also halted.
This is nothing like the relatively common trading halts imposed by the exchanges under various circumstances—-which halt all trading, not just buying.
This is a specific broker—-one with direct financial ties to this trade, by the way—-totally shutting down the ability to enter an opening order for a specific ticker. Pretty unprecedented artificial suppression of demand.
> This is a specific broker
Several did it. I heard WeBull did the same. I know I got a TastyWorks notification when they did it (and a little while ago when they turned it back on).
The more I hear, the less convinced I am that RH in particular did something nefarious.
No this actually happens and it's not the first time (see retail investors vs dot com bubble for more). RH likely has lawyers that referenced past instances of SEC action and decided to take the path of least resistance.
Didn’t IBKR do the same, among others?
Exchanges have very clearly defined rules for when they will halt trading. With clearly defined rules, you always know why a stock was halted, and when it will resume.
Robinhood has no set rules, and it was impossible to predict when or if they'd halt purchasing shares. It was also not possible for Robinhood traders to know when trading of the stock would resume.
Also; Robinhood didn't halt the trading of GME, AAL, AMC, BB, and others. They just halted the purchasing of new shares. Robinhood tried limiting who could buy shares of those stocks to only the hedge funds. That would drive the stock price down, thus manipulating the stock price in the favor of Citadel / Melvin and their short positions.
Do you have an example of a broker halting purchases, but not sales, for customers who have the cash?
Trade halts are generally by exchanges and not individual brokers, no?
> This lawsuit will go nowhere. At best a tiny settlement after years of litigation. Congress will have a few hearings for show, so reps can get face time and claim to be "for the people". SEC will wag their finger, might even levy a few hundred thousand in fines.
This will be the end of wall street. Or at least, the end of companies like Robinhood. Faith in American systems were already at all time low after last four years and now with this kind of market manipulation at the expense of retail investors, American stock market will be bust. There is zero reason to play in this casino.
Robinhood could shut their doors tonight and it would have little impact on Wall St. or the American stock market. Robinhood isn't even in the top 5 for online brokers in terms of assets under management (AUM). Vanguard, Schwab, BAML, Fidelity, and Ameritrade are literally handling trillions of dollars (that's trillions with a T) [0], while Robinhood is estimated to be managing ~$20 Billion. [1] Sure, you could argue that's not all "retail investment", but they are not even in the same ballpark.
[0]: https://www.fool.com/the-ascent/research/online-brokerage-st...
[1]: https://www.brokerage-review.com/investing-firm/assets-under...
EDIT: Added concession in last line that not all in the top 5's AUM is retail, but the point still stands.
It's not about RH at this point, it's about faith in the market. It's like you were winning at the casino and a cop came in, put you in handcuffs, then gave all your chips back to the dealer.
A great metaphor I heard was that it's like you're playing blackjack, and have just placed a huge bet. You're cards are dealt. The pit boss walks up and says "this is a baccarat table now", but you have to keep playing with your blackjack hand.
Again, I think you're overestimating the negative sentiment about the market being driven by the madness that is GME, BB, KOSS, and EXP over the last few weeks. Most retail investors are watching from the sidelines and scarfing down popcorn, not actively participating. You're hearing about a very small portion of the market and extrapolating that out to everyone, but that's simply not the case.
Market manipulation is not new, and it's not impacting most retail investment strategies, which are much longer term. This is exposing inequities in the market that have existed for a long time, but I would be shocked if it has a significant impact on the assets of retail investors. As others have said, what other options are there? The game is imperfect, but that doesn't mean everyone stops playing all the sudden.
It's all over the news. You don't think a story where a company halts buys so an investor can recoup their loss at the expense of the retail investors won't affect faith in the market?
Will it impact faith in the market? No. It will absolutely cause people to think twice about Robinhood as a brokerage, but that is a small portion of the market.
I was able to trade GME all day on E Trade without a single issue.
If you count cards, the pit boss will ask you to leave.
Personally, not a fan of the casino metaphor.
+1, fully agreed. There are definitely people making stupid bets and losing (like they should, IMO), but the notion that markets are this black box beyond human comprehension is laughable. That's especially true when you filter out the noise and find companies with solid fundamentals.
or the media steps in and runs damage control all they have to do is lie for a few months and people will completely forget hell, even if they have to lie for a few years, they already did that with ebil organge man and it only made the public trust them even more
pension funds arent going to stop putting money into private equity, today will just make people less inclined to go retail
I could see a lot of money leaving wall street for emerging markets over the next 10 years but I dont think a full divestment from american markets will happen in my lifetime
Wallstreet feeds off of 401ks and municipal pension accounts. Retail investors can't influence the market broadly. Americans aren't going to stop putting money into 401ks and 401k administrators aren't going to stop shoveling money into their friend's 'funds.'
Unfortunately the odds of winning in the stock market even buying random stocks are still way better than a real casino, and casinos are still around.
Casinos are OK. Gambling is a special tax applied to people with bad understanding of the probability theory.
I feel like the people who say this have never been to a casino, they're pretty fun. I would wager most people going know they will lose money. Gambling addiction is a real problem, though.
I've only been once. Even knowing I would lose money, I still found the loss/fun ratio really awful, and when I walked out of there I knew I'd never go back. For that kind of money I can buy toys I actually get to keep, or buy an experience worth remembering.
Gambling socially, I enjoy. Playing poker with the guys, typically. But the stakes are absolutely tiny, so we really are just playing for fun.
I knew some gaming addicts. Each and everyone of them was living with feverish hope to win big one day.
However, I believe that everyone has a sacred right to destroy themselves in any way they like. If they choose to ignore conscience and indulge in gambling, it is on them.
Preface: I'm totally in favor of people going to casinos if they want to.
People say this and chuckle about how witty they are but it's the only "tax" that we let billionaires extract from the poor and act like we're okay with it.
If you got a bunch of spare money and spare time, enjoy the casino.
If you got a bunch of spare money, enjoy the stock market.
Where else are you supposed to put your money? Bonds? Real estate? A bank savings account? Good luck. People will not be able to live with their own failures. And where will that bring them? Back to stocks.
Crypto enters the chat
Hedge funds already game crypto.
At the root it’s nation state currency being manipulated.
Like in 2008. Privatize the gains and socialize the losses.
The entire ledger needs a wipe. It’s pure emotional bias to suggest the future is obliged to carry the debt of the past. There’s nothing in science suggesting such a truth exists.
This. Alternatives exist and will be created as faith in America keeps falling. The world hasn't run out of smart people.
What are they even alleging RH did wrong? Any broker is free to decide what the let their customers trade. They could restrict buying AAPL if they wanted to. This is like trying to sue a bar for having stopped serving your favourite beer. There is absolutely no case here.
> There is absolutely no case here.
There isn't, but I think one can make the case that there should be. At the very least, communication from Robinhood, from the exchanges and from regulators was piss poor. As a result, we have half the internet wrapped up in some Ken Griffin as Gordon Gecko Batman conspiracy theory.
Robinhood was criticized for marketing day trading to people who, to a large degree, didn't know better. The counterargument was people knew what they were getting into and were free to do it. Fair enough.
This adds a new wrinkle. It wasn't ever a day trading platform! A day trading platform should be able to handle high volumes. It should be able to handle increased collateral requirements. It should be able to handle some market makers going offline. What Robinhood did is contractually allowed. But it flies in the face of what they held themselves out to be.
Robinhood sold a turd doughnut, folks said "it's fine, I want a turd doughnut," and then the turd turned out to be uranium.
Anyone who has a bit of experience trading the markets saw this (or something like this) coming for days. Just because these people don't know the first thing about market regulation doesn't mean they have a case.
What they did was effectively form a public stock pool for the purpose of disrupting the orderly function of the market, and drive up the price beyond all reason. This kind of thing used to happen regularly a century ago until regulation was enacted in order to stem that kind of abuse. If the SEC weren't in what appears to be a coma, they should have enforced those rules days ago by completely halting trading in the stock. But it seems that falls on private companies now for some reason.
What prevented short sellers from closing their position 10 days ago? Why are they still short selling to this day?
There is a case because of the reasons behind it. Say an auction house auctions off a picture. But right during the auction they announce, point to their TOS, that out of all the present bidders, only 1 person is allowed to bid. This one person then buys the picture at a fraction of the price that would have been expected if all people were allowed to bid.
On top of that it turns out that the one person bidding is part of a museum that has a significant stake in the auction house.
Of course comparisons like that break quickly. But it is very obvious that market-makers (or other players behind the scenes) were extremly worried about the coming squeeze and did that to stop the stock from going higher.
From what I've read in the complaint, the reason they're alleging is "no reason," although one claim does list "market manipulation" as a reason with no other facts to support that (which strikes me as something to be stricken as a conclusatory allegation, not a factual allegation, but I'm not a lawyer here).
Especially for something as complicated as security law, I'd expect to see an entire section on market manipulation laying out what the precedent says they need to allege to substantiate their claims and then detailing enough facts (or beliefs to be made good on in discovery) to make that claim credible. Without it, the complaint comes across less as "Robinhood clearly broke the law" and more as "I'm whining because I don't like the contract I signed with Robinhood."
There isn't a case because every user signed an arbitration agreement that prevents a class action from moving forward[1]
[1]https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...
and I guess we will see in court how enforceable that is in this case
A bar is purely for entertainment though, and that is what everyone expects. A stock brokerage is a service people count on to be able to execute their trades, some people even make a living from it. So it's more like if the electric company just decided to shut off power to your factory one day, or the bank just decided not to open one day that they were supposed to be open and you were unable to withdraw money that you needed. These are things you might reasonably try to sue over if they caused you tangible damages. And even more so if the other party might have a vested interest in stopping you.
Of course you might not always win. In the case of Robinhood, since people could still close their existing positions there might not be a very strong case to be able to prove damages. But to me it's still not a crazy lawsuit to attempt based on how many people were expecting to be able to use RH to buy this stock today, and that's what the legal system is there for.
What are you basing these statements on? Are you a legal expert in FINRA?
Legally this is nothing at all like not serving a specific brand of alcohol at the local bar.
IANAL, and I’ve only dipped my toe into studying FINRA while doing research on decentralized exchanges, but as I understand it, FINRA regulations impose a lot of requirements on brokers, particularly around fair dealing and around preventing market manipulation.
How do you think the suitability standard plays into this? I see nobody else talking about it anywhere.
The only manipulation anyone is engaging in are the WSB people, and they should be prosecuted to the full extent of the law, and should be made to forfeit any and all profits made from this criminal scheme plus penalties and a permanent ban from trading securities.
Amusing to see someone so confidently wrong about something.
That seems excessive. Not to mention unrealistic - how do you prove that any single person engaged in a crime?
That makes no sense. If you set that precedent then hedge funds will short more than 100% of every company on the stock market and make a lot of money of that.
Do you know what short selling more than 100% of the available stock does? It's the same as if every single stock owner collectively decided to sell their shares. Worse 140% of the float was shorted which means the amount of people that sold their shares was bigger than the entire market. That's an extreme example of market manipulation and that is what happened to GME. It was trading at $4 per share when its fundamentals would value it at $20.
You're also forgetting that this started with the Chewy CEO buying a 13% share in the market because he wanted to turn Gamestop into a growing company. That was the day when short sellers should have started sweating but they kept shorting more and more. They could have made a lot of money by closing their positions. If they had done so they could have shorted Gamestop again once its digital business turns out to be a dud and short it again with almost no risk. Why on earth did they not do the responsible thing? Come on. It's extremely crazy what they did and it can only be explained by greed. When you short a stock from $20 or more to $4 the only upside left is that the stock literally goes to $0. That's a measly $4 when you already have safe $16 gains per share.
Unfortunately they failed to close their shorts and become rich. I don't know exactly how much Melvin Capital had in shorts but they probably could have made $3-6 billion off reasonably safe shorts. If they started at $3 billion they would have basically trippled their starting capital. That's a bitcoin bubble level of return with a fraction of the risk. It was almost guaranteed money.
Now enter greed. They never exited their shorts until recently and they probably didn't exit all of them. Other hedgefunds still keep shorting the stock even though it is going up astronomically.
How does wall street bets enter the picture? Wallstreet bets is just a place where your average retail investor posts some memes about how much money they have lost. They've grown thick skin and are willing to trade $300 or $600 with the full expectation of losing the entire investment. They absolutely love household brands. They shill Nokia, Blackberry and also Gamestop. Here is the thing. They know that short sellers are holding the bag and completely "overshorted" the market and put themselves into a really bad position of their own making. They started buying the stock because it fits with the WSB theme. They value the stock like a beanie baby. The stock itself is what they care about, not how much it costs and that means they will not sell their precious stock. It's like any other consumer good. They are basically decorating their broker trading apps with stocks and the accompanying losses. It's purely about fun.
Okay now lets go back to what you said.
> The only manipulation anyone is engaging in are the WSB people,
As I said they basically buy shares and hold them. What I haven't said is that WSB is a tiny fraction of the buyers of GME. There are lots of large institutional traders investing into GME. The only difference is that WSB types tend to be slow and just end up holding the stock way too long. Either by accident or intentionally. This idiotic slowness is actually very bad for short sellers because they bank on desperate people selling their shares in a panic. It's a situation in which the disadvantaged retail trader somehow does not suffer from his weaknesses.
>and they should be prosecuted to the full extent of the law,
They aren't breaking any laws. The short sellers are potentially doing illegal naked shorts. We don't know but considering that more than the 60 million shares are shorted its not impossible that 5 million of them are naked.
>and should be made to forfeit any and all profits made from this criminal scheme
What about the act of selling all shares in a market to artificially drop the value of a share below its fundamental value? Why is that not a criminal scheme? I'll repeat, if you let the short sellers get away with this then they can get away with anything. They can tank any stock simply through the act of shorting. If shorting 100% isn't enough then they'll go for %200. If that isn't enough they will short %300. There is no limit to how many shares you can short just like there is no limit to how much debt banks can create if it wasn't for reserve requirements. With this strategy you can reduce the market cap of any stock to zero. Think of destroying Apple overnight. That's what you can do with naked shorts.
>plus penalties and a permanent ban from trading securities.
The only counter strategy against an over shorted stock is to just buy it. There is absolutely nothing illegal about buying stocks. However, if you make it impossible to buy it then you basically make the short selling scheme self fulfilling because it has no natural predator.
Well, you clearly don't understand how any of this works if you seriously think that having more than 100% of the float sold short is somehow indicative of market manipulation.
It's pretty simple really: If you want to sell short a stock, you need to borrow it first. You can only borrow it from someone who owns the stock. But each short sale also creates a new corresponding long position that can again be lent out for more short selling.
Example: Let there be a stock with a float of 100 shares that you own. You are a long-term investor L1 who loans out these stocks (for a fee) to a short seller S1. S1 borrows the stock, and sells it to another long-term investor L2. There is now a short interest of 100 shares, or 100% of the float. But L2 can again lend out those shares to another short seller S2 who sells the shares to yet another investors L3. Now you have a short interest of 200 shares, or 200% of the stocks float. But absolutely nothing illegal like naked short selling has happened, because the sum of all short and long positions still equals the float of +100. That's simply who this works.
But now we have a bunch of ignorant amateurs spreading conspiracy theories while pumping up a largely worthless company to a ridiculous valuation. And that is market manipulation, because there is no fundamental reason why this stock should be this expensive. What's more, transacting in a security for the sole purpose of raising or depressing its price in an attempt to induce others to buy or sell that security is a violation of 15 U.S. Code § 78i. As hundreds or even thousands of posts on reddit and other sites will confirm, that is exactly what these people are doing. They are publicly admitting to the crime.
Regulators cannot let this stand, because otherwise you are encouraging more of this kind of market manipulation and abuse. An example needs to be made out of those who are responsible.
> Any broker is free to decide what the let their customers trade.
This exact point turned up 4 hours ago in another thread:
https://www.investor.gov/introduction-investing/investing-ba...
> Rigging quotes, prices, or trades to make it look like there is more or less demand for a security than is the case.
By restricting only buying, they effectively rigged the prices to make it look like there's less demand than is the case.
don't know why this is downvoted. they literally enabled the short holders to engage in a ladder attack with a fraction of the volume it would have required otherwise.
found the "should just build their own exchange with their rules!" comment
I don't understand how you could possibly be angry when you didn't even take the time to read the ToS.
Considering that ToS are intentionally opaque / full of legalese the average person doesn't understand, and that companies can change their ToS pretty much without warning and with minimal notification to the end user ("here's an email resembling spam saying our terms of service have changed in some way"), I don't consider this to be a legitimate defense. With Schwab you sign a contract that can't trivially be changed. I don't remember doing any such thing with Robinhood.
Why would you ever agree to something you can't even read? Your argument is such a cop out. If you can't read the ToS, take some English classes until you can.
This is getting too dumb for me. Anyone can write incomprehensible sentences if they want to. They can also hide all the important details behind a lot of rambling.
There is also the problem that reading every ToS is a denial of service attack on customers.
Interesting observation.
You're right, but I'd not make that argument here. I made a similar argument when this recalcitrant doctor was pulled of a United plane a few years back, justified in my view, and in line with the conditions of carriage. But, yeah, HN crowd wasn't pleased.
(Many said they'd never fly United again, and most people wouldn't... United share price dropped a bit, then went straight back up to where it was and beyond. Well, until COVID-19.)
Edit to add: BTW, the point is not that you should always read the TOS. The point is that you should read the TOS before complaining if something unexpected happens.
Do you read the ToS for every service that you use?
Equating speculative stock trading with opening a Facebook account is a very weird thing to do.
And reread it every time it was changed?
They notify you when it changes, so yes.
Yes.
“ANTHONY DENIER: Well, it wasn't our choice. Our clearing firm gave us a call and said we're going to have to stop allowing new opening positions in the three names, AMC, GME, and KOSS. Highly volatile, and what happens is this is not a political decision. And unfortunately, it got political. I think, you know, I think it was once said that don't let any good crisis go to waste. And that's clearly what's happening here.
And we're seeing politicians jump on the bandwagon so they can get-- so they can start trending on Twitter. But in reality, what's going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. And because of the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive.“[1] from the CEO of Webull.
[1]- https://finance.yahoo.com/video/heres-why-robinhood-restrict...
Edit: Non amp link.
Insightful interview.
More money quotes:
ANTHONY DENIER (CEO Webull): [...] 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. And they simply can't afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar-- smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market.
ZACK GUZMAN (interviewer): [...] We had the CEO of Robinhood on yesterday kind of talking about why they were taking a different tact [sic] and not restricting trading because, you know, they wanted to leave it to their individual retail investors to make these decisions. Didn't want to step in and fuel into the nanny state idea. But what about maybe curbing this a little bit earlier? Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that?
ANTHONY DENIER (CEO Webull): Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions. Liquidations can happen at any time. This is general market mechanics. We have customer protections in place. We would never stop a customer from being able to get out of a position.
[...]
I think when you say the regulators stepping in, it will happen on both sides. It's going to happen on looking into should a hedge fund be allowed to get a 10 times leverage and short 140%, 150% of a company. Should that be allowed in a regular-- you know, in a healthy market.
And then, on the other side, should it also be allowed to have mob and herd mentality of rolling into stocks? And should these things be curbed? Look at the examples that happened overnight in Australia, where a mining company, GME in Australia, was up 100% overnight because people just blindly went in on anything GME without reading below the headline.
So if a new investor puts a stop loss order in at a 60% loss, brokers let them exit their position and then didn’t let them back in?
This seems unconscionable given the >300 point volatility today and the large number of brand new investors.
It’s hard to imagine how these actions didn’t benefit wallstreet at the expense of regular people.
> Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions.
This is a problematic statement. Because to sell your position there has to be buyers, and the only buyers who were allowed at the table suddenly were those who wanted to pay significantly less then the stock had recently been trading at.
> Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that?
It looked more like, what happened was you had retail investors that couldn't buy securities, but Robinhood was allowing them to sell them to make them available to customers in order to clear leveraged short positions.
Ok so let me understand. You can sell you position no problem. So who's going to buy it, if buying is not allowed?
In this case, either the hedge funds clearing their short positions, or traders on literally almost every other platform out there (I opened a few positions on Ameritrade today for example).
Someone not on Robinhood can buy it.
Right, so... the shorts that need to clear their position before the price rises further.
Sounds like market manipulation to me.
He lied. They’re forcing retail investors to sell their positions.
Brokers must often sell customers' positions if they have insufficient margin. Where did he say they wouldn't?
True, but that's for leveraged positions. So I wonder was that leveraged position or just plain "own stock" position? If the latter, I never heard about broker liquidating a position against the will of the client, when settlement of debt is not involved. Does it happen?
Edit: screenshot from reddit: https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=...
It applies to any margin position. This can just mean trading with unsettled funds. E.g. you buy a stock, sell it, then use the proceeds to buy another stock (or the same one) before two days have elapsed.
$118? That's daylight robbery. It must have been the lowest point of trading today.
In fact, when I look at the stock chart on Yahoo the lowest value $GME had was $126!
Forced selling doesn't just happen arbitrarily, but precisely because the price is low. Long positions using borrowed or unsettled funds are similar to shorts in that they can be squeezed, just in the other direction.
Of course it's not political, in the sense that RH routes their order flow through Citadel's MM arm, who are probably getting squeezed by Gamma on their (previously) OTM naked calls, and if Citadel is the prime broker for all of these shorts _significant_ exposure on that end, as well as the exposure that Citadel hedge fund has on the short position through Melvin.
> if Citadel is the prime broker for all of these shorts _significant_ exposure on that end, as well as the exposure that Citadel hedge fund has on the short position through Melvin.
Isn't this meant to be the reason for the "Chinese Wall"? In theory, Citadel as a brokerage is meant to have no insight into the operations or needs or desires of Citadel Hedge Fund. The technically correct answer here seems to be "not my problem", however... not so much.
In theory... in practice? So much illegal shit goes down in finance all of the time. rarely if ever it gets caught.
And when they have literal billions on the line a slap on the wrist fine is preferable.
This reads like GPT-3 output, like what on earth are you talking about. I don't think you understand how options market making works and for the record citadel is not a prime broker. I'm no citadel fan but the descent of this sub into lunacy conspiracy is something to behold.
Citadel has two main arms; Citadel Securities which is a market maker, and Citadel, which is their investment arm.
I don't think you understand how the options market work. Several of the large spikes on Friday and the past week is the result of MM (like Citadel Securities) having to purchase shares to cover the naked calls they sold.
I'm well aware of how citadel is structured thanks, I used to work there.
If you think options dealers go around taking massive unhedged directional bets then you are very misinformed. I don't have any inside knowledge but i'd bet a pound to a penny the options desks have been making out like bandits this week.
This was a better worded answer to the question I posted in a sub comment:
If I'm understanding (i might not be) this is why it feels like fraud/not following fiduciary responsibility to their clearing partners.
--
Does citadel clear their own trades? I could be off here, but what I'm asking is getting at like if they are on all the sides of the transaction as market maker, participating or allow others to participate in 'betting', and clearing the trades themselves? Does a trade even need to clear if it's just moving internally changing col A owner ID from 1234 to 9999?
Citadel has two sides to their business; Citadel Securities and Citadel. Citadel is the investment side and Citadel Securities is the MM side. I'm assuming that Citadel Securities does not clear the trades for Citadel, but don't quote me on that.
Robinhood does clearing by itself. Webull uses a partner company for clearing.
But still, I think that there are legitimate factors for why Robinhood stopped taking buy orders for those stocks, like ensuring liquidity through clearinghouse deposits while trades are underway.
Yes, the factors are governed by how they make money.
If one is not the customer, then they are the product!
tldr; even if Robinhood does it's own clearing (which I'm not suggesting they don't) it's reasonable to not risk their business to support the current market. Does "the market can remain irrational longer than Robinhood can remain solvent" apply here?
Any valid argument that would cause another clearing house to not be able to afford to handle these orders would seemingly-equally apply to Robinhood's own clearing house; no matter who owns it, the clearing house can't afford to go broke.
If someone is arguing that Robinhood should have the risk tolerance and reserves of a larger financial institution in order to service high volatility trades.... then maybe that person should use a larger financial institution to place these high volatility trades.
I thought RH used Citadel
They write about it in their FAQs: https://robinhood.com/us/en/support/articles/whats-clearing-...
To my knowledge, RH sells its users' order flow to Citadel (which is how they make money).
clearing is totally separate from flow
This sounds very plausible, but: I don't remember any cases when I've ever heard of specific platform stopping trade for specific stock just for volatility. I've heard about the cases of trade stopping when something clearly going wrong - like market crash, or bot-driven feedback loop, or such. And this usually then comes for the whole exchange or all exchanges the stock is listed on, not just a handful of platforms. That of course doesn't mean it didn't happen - just that I haven't heard of it. So is such thing common and does anybody have examples of such things happening in the past - I understand it may not gather as much press as this one but somebody should have mentioned it somewhere? Is it indeed a routine thing that got overhyped, or is it an exceptional thing trying to hide behind a routine procedure?
Also, these stops are supposed to be written into the rules BEFOREHAND and should have clear rules for when they can and cannot happen.
suggest you use a non-amp link:
https://finance.yahoo.com/video/heres-why-robinhood-restrict...
Done. Thanks!
Now there are reports they (robinhood, not webull) are force-selling positions: https://redstate.com/scotthounsell/2021/01/28/robinhood-app-...
If that's true (never assume something coming from Twitter is true without verifying, so it's still a rumor by now) then I don't see how "it's too risky" explanation holds. And of course selling somebody's property against their will is a fraud, at least on the face of it (IANAL).
Edit: screenshot from reddit: https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=...
That makes sense as an explanation - but this interview is with the CEO of another brokerage, Webull.
It seems that Robinhood does its own clearing (maybe not for everything?), cf. https://robinhood.com/us/en/support/articles/whats-clearing-..., so the story is probably a bit more complicated there. Could still be a similar dynamic, of course.
But if they are doing their own clearing, then they are taking the risk directly, which other clearing houses seem to think is significant. Robinhood isn’t obligated to put itself at risk of bankruptcy so people can make free trades.
Short squeezes are illegal. Any brokerage that knowingly allowed a short squeeze to continue without taking action, could have potentially massive legal liabilities.
That is another explanation beyond the 2 day settlement window that Webull published.
Source on the illegality of short squeezes? To my knowledge the term just describes the phenomenon of prices rising as a result of shorts being forced to buy shares to settle their positions. It's a natural consequence of market forces, I don't understand how it could be illegal.
That doesn't say short squeezes are illegal, it says manipulating the market to cause a short squeeze is illegal - but that's not what's happening. People are buying stock to profit off of a short squeeze or to hurt the short sellers. Some people believe GameStop will go up and others think it's an opportunity to profit off of a naturally occurring short squeeze and others think it's a way to hurt the hedge funds. None of that is manipulation.
By contrast preventing a million people from buying a stock at a critical moment is clearly manipulation.
"Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal."
By this logic though, if you're already in a short squeeze, then the retail buyers (the ones who are doing the squeeze) not buying any more should not cause the price to drop: the person getting squoze (did I use that word right?) will have to buy whether or not Robinhood traders are. The price would still be shooting up. In a short squeeze all that WSB had to do was hold.
If your "short squeeze" is dependent on people buying more in order to create a short squeeze, then you are just coordinating to create a short squeeze, not dealing with a "natural occurring" one.
> By this logic though, if you're already in a short squeeze, then the retail buyers (the ones who are doing the squeeze) not buying any more should not cause the price to drop: the person getting squoze (did I use that word right?) will have to buy whether or not Robinhood traders are. The price would still be shooting up. In a short squeeze all that WSB had to do was hold.
Obviously the blocking of buys will have an effect on the price and availability of the stock. Not that it provides any reasonable justification for RH either way.
> If your "short squeeze" is dependent on people buying more in order to create a short squeeze, then you are just coordinating to create a short squeeze, not dealing with a "natural occurring" one.
Even if you want to buy the stock because you know there is a short squeeze ongoing, that is not illegal. That is just analysing the market conditions and seeing the obvious.
The natural short squeeze, or the possibility for a natural short squeeze, is created by the fact that there is more than 100% short interest of float and the price is going up. At that point retail investors realize possible short squeeze and buy in to profit off of it simultaneously making the squeeze worse for the shorts.
I'm honestly having trouble grasping what you and others think could possibly be illegal about this. Short sellers aren't prohibited from losing money by law.
> If your "short squeeze" is dependent on people buying more in order to create a short squeeze
Who said that was the situation though?
The problem is that buying the stock became something that was largely barred from retail investors, while institutional investors faced no such issue. Indeed, when a stock can only be sold, that means it can only go down, so the pressure of the short squeeze was alleviated as a natural amount of selling occurred while buying was artificially deflated by multiple brokers and entities preventing retail investors from purchasing a stock that was > 100% shorted.
This was guaranteed money for these traders too, the short squeeze was already on - the shorters were on the hook for this money.
The fact that there are huge financial relationships across the chain from one of the biggest shorters of the stock all the way to Robinhood makes this the controversy it is today. The market prevented natural market mechanics dictating a short squeeze that was already on.
You keep saying this here but AFAIK they are not illegal. What are you basing this on?
The SEC published guidance here https://www.sec.gov/investor/pubs/regsho.htm
Yeah you keep linking that too, it says market manipulation/schemes are illegal.
It's absolutely unclear if that's the case here, and in fact based on the few extreme times short selling has been illegal I'd say this definitely does not get there.
> Short squeezes are illegal
This is the first time in all this crisis that I see anybody say that short squeezes are illegal. Can you elaborate? What's illegal about them?
They have happened many times. I rememeber the VW one a while ago, and I don't rememebr anybody saying they were illegal.
Edit: Right, I saw the link now. Very interesting, thanks.
This user is repeatedly posting misinformation and hiding behind links that don't support his position. I have repeatedly called them a shill and wish to spread the awareness
[0]: https://news.ycombinator.com/item?id=25950680 [1]: https://news.ycombinator.com/item?id=25950493
Hey, I'm afraid you broke the site guidelines badly and repeatedly. We ban accounts that do that, regardless of how wrong other commenters are or you feel they are.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and sticking to the rules when posting here, we'd be grateful.
Can you point to the legislation that indicates this? (Curiosity)
> Short squeezes are illegal.
Nope.
"Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal" - SEC site. See link in my reply to the other comment.
The key word there is "scheme". If we both agree out loud that the sun will rise tomorrow we're not scheming to make it so.
If some dude in an expensive suit gets on TV and says a stock will fall then buys a couple billion in shorts and you do the same because you like his style the two of you aren't scheming to make it happen.
Likewise, if some guy in his basement posts on an internet forum about how he's sure a stock will go up and you feel compelled to buy some too you're not scheming.
Finally, if millions of people are collectively motivated by the idea that they just really dislike hedge funds, want to make some money, and maybe want to watch the world burn, so they buy into an increasingly ridiculous idea they're _still_ not scheming because they all made the independent decision to do so after doing what amounts to each individual's 'due diligence' and are not entering or exiting the position in concert.
That entire argument depends on being able to determine individual trader's motives for their trades. Also, by that argument Robinhood is acting illegally by manipulating the availability of the stock.
I think the notion of a scheme here is what's debatable.
The risk was there when these funds shorted 140% of the stock. Retail folks noticed the potential for a naturally occurring squeeze and shared the info with world.
Wait his name is Denier and WeBull is the company name? Humm..
And these businesses have contracts specifying that they can increase prices absurdly high from one day to the other?
> these businesses have contracts specifying that they can increase prices absurdly high from one day to the other?
The Depository Trust & Clearing Corporation settles most listed securities transactions in America; in 2011, it did $1.7 quadrillion [1]. You've never heard of it unless you're a professional trader, but it's actually quite fascinating to read up on.
Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker.
There are clear rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If something goes up and down more, ceteris paribus, small mistakes are more likely to become firm-ending ones.)
Again, these are well-known formulas. Unusually, however, Robinhood didn't build this into their fee model. Given market makers, their revenue source, stopped making markets in GME on account of how volatility effects their risk profile, executing GME trades would leave Robinhood sending orders to an exchange, which may cost money, and ponying up collateral, which also costs money.
In my opinion, that's what they should have done. Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don't know if Robinhood is able to do that quickly. So instead they pulled the plug.
[1] https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
[2] https://www.dtcclearning.com/products-and-services/settlemen...
This is probably the most fascinating thing I've read so far on the subject. Given that many other brokerages seem to be doing the same as Robinhood, is it safe to assume they also are not accounting for such situations?
Also, another user shared a link above where Robinhood claims there are two types of brokers, introducing and clearing, and describes themselves as the latter[0]. Is that at all relevant here? If I understand correctly, "clearing house" is still a distinct concept that is very much involved.
[0]: https://robinhood.com/us/en/support/articles/whats-clearing-...
Thanks!
> Robinhood claims there are two types of brokers, introducing and clearing
Clearing brokers interface directly with the the clearinghouse, i.e. the DTCC. Introducing brokers clear through a clearing broker. (Who in turn interacts with the clearinghouse.)
A modern service whose whole concept is built on scale and somehow they couldn't handle the scale here. I don't buy it.
From what I understand Melvin Capital, one of the biggest short-sellers that got in trouble, is owned by Citadel, which is also Robinhood's largest customer (buying user data, of all things) and maybe partial owner. I'm no lawyer, but to me it sounds like that might be a conflict of interests.
By preventing people from buying shares, the short-sellers have less competition to buy the available shares, and will have an easier time getting them, while paying less for them. Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.
Citadel invested in Melvin this week at a steep discount, they do not own the majority of Melvin (at least that hasn’t been publicly announced).
Melvin announced they had cleared their position in GME days ago so is unlikely to be the driver for brokerage behavior today.
Citadel does not buy user data from Robinhood, they are one of Robinhood internalizers. They pay for the privilege of either trading against Robinhood based orders or routing them to an exchange.
Not allowing buys can happen for a wide variety of reasons from technical, business to legal to counterparty demands and isn’t necessarily signs of collusion.
That said there is certainly the appearance of a conflict of interest and I’m sure Robinhood will be addressing that in court and to investigators presently.
It seems we're both right in a way. Cory Doctorow has a through explanation here: https://pluralistic.net/2021/01/28/payment-for-order-flow/#w...
> "Robinhood partners with institutional investors and lets them spy on what the average joes are buying and selling. Sometimes, this is just "market intelligence" ("Hey, people like fidget spinners") but the main event is front-running."
> "If you're paying Robinhood to tell you what assets its customers are about to buy, you can go out and buy them up first and sell them for a profit to Robinhood's customers."
> "Or you can buy some of that asset up because you know its price will go up once Robinhood's customers orders are filled."
> "Citadel Securities is Robinhood's main institutional investor partner."
Cory Doctorows position is built on a flawed understanding of what payment for order flow is all about.
Internalizers do not go out and buy the things they’ve peaked at during the internalization process.
The rumour is that Citadel renewed their shorts.
https://twitter.com/justinkan/status/1354853920762253315?s=2...
> From what I understand Melvin Capital, one of the biggest short-sellers that got in trouble, is owned by Citadel
No, Citadel does not own Melvin Capital. Melvin Capital received an investment from Citadel (the hedge fund, not the market maker) and Point72 this week.
> Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.
Melvin already cut its losses this week, as was widely reported. There is no evidence for the counter claims that they're lying, which themselves originate on reddit. In particular: all the widely cited short interest figures on reddit which purport to show this are out of date (usually by weeks), and even if they were true, they would not be proof the short positions weren't closed.
So Melvin Capital got a few billion from Citadel after the reddit short squeeze started? And we're not supposed to think anything about that is shady?
And there is no proof Melvin cut their losses. There is no way to know for sure. The shorts are still there, whether they're Melvin or anyone else.
I didn't say anything about what you're supposed to think. You can definitely believe it's shady.
As for the proof about cutting losses - no, there's no proof. You can question every single fact you read about this story in the media if you want. The reasons most people have given for why they would lie about it instead of just do it kind of strain credulity for me. There are a lot of conspiracies being spread around with much regard for whether or not they are true instead of whether they could be true.
Logic says they are lying or trying to leave an impression as if they cut their losses, since if they truly already cut their losses why were they so adamant about telling their story and trying to get people out of the market. If they cut their losses they would have no incentive to tell people about it, they would just not comment and go on to new ventures.
> Melvin already cut its losses this week, as was widely reported.
This was widely reported, and Melvin might not be the big bag holder anymore, but the short interest hasn't subsided. It's actually grown.
The squeeze never happened. The squeeze never happened.
https://www.zerohedge.com/markets/we-have-some-bad-news-game...
The article above written by renowned financial journalist... Tyler Durden?
So just partially owns, then.
In the sense that any Limited Partner partially owns an investment vehicle because they have a stake in it, yes.
Melvin founder was protege of Point72's SAC
The same way public retirement funds in Wisconsin "partially own" Apple.
Do public retirement funds in Wisconsin own >30% of APPL?
Alternatively, did Wisconsin public retirement funds make an enormous investment in AAPL right when it was about to become insolvent and had no other real options for raising money? That is, you can assume anyone investing in that circumstance (like Citadel into Melvin) would demand a huge stake in return.
As was reported, the capital raise Melvin received wasn't 30% of their total AUM even after the GME losses. And even if it were, it was also reported that Citadel and Point72 received non-controlling revenue share.
I'm having trouble finding specific numbers, do you have a source?
As far as I can tell they started the year with ~12.5B AUM, and have lost ~30% on the year and received a 2.75B cash infusion from Citadel et al, which I assume was at a discount given their position. So my rough estimate is around ~25-35%, given the uncertainty around those numbers.
Here's an intereating tweet and the associated Reddit thread.
https://twitter.com/justinkan/status/1354853920762253315?s=2...
https://www.reddit.com/r/wallstreetbets/comments/l747eg/cita...
This seems, at first glance, to be clear and blatant market manipulation by Citadel and Robinhood.
The thing is, all brokers are doing the same. How on earth is this possible?
Reuters are claiming short sellers have lost 70billion usd, when they are the sums involved, anything is possible.
There was someone claiming to be a robin hood employee, that the White House got involved. Obviously I would take this with an extreme pinch of salt but with those numbers there is every motivation from the powers that be
If you’re talking about this article https://www.reuters.com/article/us-retail-trading-shortbets-... the 70 billion number is loss on _all_ short sales YTD. GME is about 1 billion of that total.
I'm with Ally bank and right now they're telling people that it's their clearing firm (Apex Clearing Corp) that's blocking buys of GME and some other stocks.
Could it be that other trading platforms use the same clearing firm?
Interestingly, I bank with HSBC and I could buy and sell GME and AMC the whole time outside of when it was halted. I called them to ask why and they said they clear their own trades. Not sure how exactly that is possible though (if anyone can explain...)
Typically when you buy/sell a stock, it's not moving anywhere. Robinhood would try to sell the stock to someone on Robinhood buying the stock first. The big banks and brokerages have enough people buying/selling within its platform that it has enough supply to trade within itself.
For a small brokerage, they would have to work with other brokerages to help them trade, as they wouldn't have enough shares they already hold to trade them within their users. So Robinhood asks Apex for more shares, and Apex has to ask HSBC/Fidelity/JPMC/Goldman if Apex doesn't have any. At some point, all the other institutions also don't want to give up their shares because they need to satisfy demand from their own users. Trading with other firms tends to be really slow too.
It's a short squeeze too, by definition there's not enough stocks available for everyone who wants to buy. So some firms ran out and couldn't get more.
You left out the exchange. Why can't the small brokerages go directly to the exchange?
Defeats the purpose of using a broker/clearing house, there are products that let you trade on the exchange directly. RH probably figured there's no point in integrating all the way to the end if no one would normally use it.
Same with doing your own clearing, there's complexity involved with clearing and maybe you don't want to implement it all yourself when someone does it better for cheaper.
It's like asking why we don't all program in assembly all the time, or even have the option to mix assembly into our high level code. It's just nice having layers of abstraction that handle the annoying stuff for you, even if there's a minor cost. Why have complexity you don't expect to need?
You may want to look up Reg NMS and the various rules about internalizers.
Robinhood uses Apex behind the scenes too. Apex is probably having trouble clearing these trades (given how one sided it is) and just decided to not trade them, resulting in the butterfly effect of multiple brokerages not trading these stock.
>Apex is probably having trouble clearing these trades (given how one sided it is)
That's... not how stock markets work. For every buy there must be a seller. If there are too many buyers but not enough sellers the price simply goes up.
Sure, that's what would happen if buys and sells could reasonably be paired up. Robinhood/Apex could've just kept these buy orders open until it found a seller at any price and closed unfilled orders at the end of the day. That would probably be less preferable to all involved as I doubt these people were placing limit orders.
I don't think they use Apex anymore.
https://blog.robinhood.com/news/2018/10/9/introducing-cleari...
Apex is the clearing firm for Tastyworks and Webull too. I got an email from Tastyworks about restrictions (which just got lifted).
trading212 wouldn't let me buy, but fairtrade app did.
Vanguard has not blocked anything. Just wanted to throw that out there as I really like them as a company.
Right. I was able to buy/sell Nokia (NOK) and Build A Bear (BBW) today with no trouble. However, a colleague showed me they blocked BBW sales later (screenshot).
Also see GME in Fidelity
They all used the same logic to make this decision, that's how. They all saw suspicious patterns of trading by retail customers and made the typically overly cautious decision to restrict trading until they receive guidance from the powers that be.
You're going to have to source that claim, friend. There is nothing more fundamental than supply and demand. The action to allow people to sell but not buy is not overly cautious, it's obviously advantageous to the short interest.
Cartels... It's got Anti-Trust written all over it. Not sure the US will do much though.
Jesus, it kind of shows how corrupt the US really is. We're all basically watching a bunch of people commit crimes that from my quick Google carries a max sentence of 10 years with billons of dollars on the line and we're all pretty sure they're going to get away with it.
Though, I do think if Biden makes sure the justice hammer comes down on this, it'll win over a bunch of Trump supporters.
This. It's been an incredibly eye opening week. From news trumpeting that Melvin Capital closed their short position [1] -- which is questionable at best -- to all major US brokerages preventing retail traders from participating in securities that they shorted. This is so surreal that it almost seems like a conspiracy, but i think in reality it just shows how corrupt the market really is and how much power these hedge funds hold. I'm eager to see the fallout from all of this and if SEC will take action. I didn't know that hedge funds aren't obligated to disclose their short positions on 13f. Maybe, for starters, the SEC could prevent them from hiding their shorts.
[1] https://www.reuters.com/article/us-gamestop-melvin-idUSKBN29...
It was a strong anti trump sentiment that united the democrats but it’s easy to forget that Biden is still met with some caution in his own party as being the establishment candidate, not necessarily a corporate stooge but no Bernie either, it would do more to dispel that within his own party.
Ẃhy would his own party be pissed that he made sure the justice department properly investigated bankers manipulating the market? Honestly, I think this is one of those issues that will unify everyone to a common cause, god damn rich people screwing the little guy.
Read my comment again.
Yea. I misread, my bad.
> Though, I do think if Biden makes sure the justice hammer comes down on this, it'll win over a bunch of Trump supporters.
I'm not sure anyone who still can be considered a “Trump supporter” is swayable; on the other hand, if Biden is seen as politicizing prosecutorial decisiones it’ll lose a bunch of Biden supporters.
It's also questionable how much influences Biden’s preferences have at Justice since his AG nominee hasn't been confirmed and everyone at levels requiring Senate confirmation there is a Trump carryover (though, to be fair, the Acting AG was appointed from within by Biden and wasn't out of order of seniority, IIRC, so he has exert what influence he can to select leadership given the constraints he faces.)
Other brokers are also blocking buys on different tickers. E-trade prevented me from buying $GME, and looks like they've blocked $AMC buys too.
https://twitter.com/AstralTrading/status/1354884246389874689...
That's insane, tried to buy GME on robinhood and my trade just got cancelled...
I've scanned the lawsuit (https://www.courtlistener.com/recap/gov.uscourts.nysd.553175...). I'm not a lawyer, but my first reading of it is that this is not a strong lawsuit.
The complaint is largely framed around "Robinhood prevented us from executing trades against GME, and it is contractually required to execute all trades." However, the actual contract explicitly says the opposite: Robinhood can choose to limit execution at its own discretion. So in order to win, plaintiffs basically have to get the relevant clauses of the contract to be ruled illegal. The extent to which this is possible is dependent on securities law which I am very unqualified to comment on, although I will note that the complaint does at least include some relevant allegations to what they need to do, which is better than other lawsuits I've seen (oh hi Parler).
You're not a lawyer, which is why you don't understand that ToS writing never protects you from actual criminality, which in this case appears to be a clear case of market manipulation (restricting trades to only sales and not buys? how much more blatant can you get).
Which is why the complaint spends all of (checks document) 1 sentence alleging market manipulation:
> Upon information and belief, Robinhood’s actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial intuitions who were not Robinhood’s customers.
And even then, there aren't enough other facts in the complaint itself for me to feel comfortable justifying discovery. For example, they never mention that Robinhood allowed only sales, instead alleging that Robinhood disallowed all trades with GME.
The best route plaintiffs have to win the lawsuit is to argue Robinhood's illegality here. They don't do that effectively in the complaint, which hurts their case (though they could, and probably should, amend their complaint accordingly).
So I generally agree with you and feel like there's some amount of market manipulation and wall street types taking advantage of normal retail investor folks going on here. That said, I'd like to challenge some of my axioms and strengthen my own beliefs so raising one question I don't have a good answer for.
If Robinhood is doing what they claim, ie: is having issues fulfilling orders and/or is legitimately trying to protect retail investors by limiting purchases of a volatile asset, wouldn't it be worse if they prevented people from selling as well as buying? Is there some detail I'm missing that makes only limiting buy orders "blatant" proof of market manipulation and not the best possible option they had if they were acting in good faith?
Note: even if my counter argument here is correct, I don't think that necessarily means nothing fishy going on since there are a lot of other questionable factors at play and even if they were acting in good faith within the "stock market game" that doesn't mean the game as a whole isn't rigged.
Surely its a response to market manipulation? Which, almost by definition is going to require some level of intervention.
My understanding is the forum members were colluding to drive up the price of particular securities? How is that not manipulation?
Although I guess I would have preferred the relevent stock markets to step in with a complete trading halt on those securities if intervention was required.
Your understanding is a bit oversimplified. What the members of WSB are trying to execute is a forced short squeeze to take advantage of naked short positions, which are themselves of questionable morality. However, this is not market manipulation, nor is it a pump and dump. If you read the rhetoric carefully, they are "holding because they like the stock." If this qualifies as market manipulation, the argument is that virtually any strategy employed by any hedge fund or investment firm anywhere would classify as "market manipulation," probably to an even greater degree.
Market manipulation is still manipulation whether you've written it in your Terms of Service (which isn't the law btw like Craigslist do-not-scrape "law"). The basic spirit of the contract between a trade executor and the client does not allow for interference barring regulatory or SEC enforcement.
Meaning RH took it on themselves to enforce a rule that its users had no idea of, hence the outrage.
If it was well known (with clear warnings on the splash screen of RH highlighting their "special" rule) then the case might be different.
If it gets rejected at this level then almost certainly SEC will be involved. If they side with RH then it would certainly destroy the trust of the retail trading industry. We also now seem to be witnessing a political opportunity for the Biden administration (ex. AOC's tweet throwing support for WSB).
Essentially what we are seeing is a payback by the people who got outsmarted by a bunch of redditors and arguing that they cannot be allowed to fail for their own stupid trades (like shorting over 100% of the stock available), so they pulled all the tricks in the book to once again bend the market to their will like they always have.
Anybody who thinks things will go as they have before are mistaken; We are in a very different political environment and stuff like this is the perfect opportunity for the Biden administration.
>> Market manipulation is still manipulation whether you've written it in your Terms of Service (which isn't the law btw like Craigslist do-not-scrape "law").
Yes. And intentionally interfering with supply and demand is the textbook definition of market manipulation — it appears in SEC powerpoints and everything!
https://www.sec.gov/files/Market%20Manipulations%20and%20Cas...
I'm sure this will all be downvoted because it will hurt peoples feelings.
1- RH, Etrade, etc are not manipulating anything. The ones who manipulated were the reddit and other chat rooms. If Costco doesn't want to stock your favorite item any more do you get to sue because you still want to buy it?
2- If the customers had no idea of the legal documents they signed when they opened their accounts, their bad, not the broker.
3- 'the trust of the retail trading industry' Certainly not retail investors (who are not the people doing this stuff). And I doubt also retail traders who are not engaged in mob trades based on what is coming out of internet chat rooms/boards. There was day trading prior to the advent of Robinhood and Covid-19, right?
4- First off, the shorts are done. That is a large part of why the price went to where it did. Second, the brokers are protecting themselves from default on margin loans as well as the headache and aggravation of closeouts when 'traders' moan about the fills.
5- Why on earth should the Biden administration go to bat for a retail trading mob? Many of whom are on record in the press as having used their stimulus and unemployment checks as capital?
6- Shorts are not only necessary for a market to function well, they are a common part of the market having nothing at all to do with a view on a company. The largest example of that are fund managers selling the stock of an aquiring company against a position they own in the company being purchased. Fund manager could mean pension fund manager, mutual fund manager, or, gasp, a hedge fund manager.
> RH, Etrade, etc are not manipulating anything.
I don't know how you could possibly argue that when RH is preventing the purchase of a stock, but not the selling (Which pushes the stock price down), and trying to use the argument of "we're trying to protect you from volatility!"
> If Costco doesn't want to stock your favorite item any more do you get to sue because you still want to buy it?
This is such an apples-to-oranges comparison here that I really don't feel you're arguing in good faith.
> 2- If the customers had no idea of the legal documents they signed when they opened their accounts, their bad, not the broker.
As others have said, EULA doesn't trump the law.
> 3- Certainly not retail investors (who are not the people doing this stuff).
Either I'm misunderstanding what you're saying here, or you are 100% incorrect. It is absolutely the retail investors that are buying the GME stock and doing this.
> 4- First off, the shorts are done
We don't know this yet.
> Second, the brokers are protecting themselves from default on margin loans as well as the headache and aggravation of closeouts when 'traders' moan about the fills.
Defaulting on margin loans is prevented by issuing a margin call. Some traders are moaning about their GME being liquidated because they bought on margin while going all-in on GME, but even on WSB, most traders understand that's how margin works.
> 5- Why on earth should the Biden administration go to bat for a retail trading mob?
For the same reason Ted Cruz is. RH is impeding the free market. It's pretty crazy right now. Ted Cruz, AOC, Ben Shapiro, and Donald Trump Jr are all upset with RH right now, though for different reasons. The leftists are upset that the hedge fund managers are pissed that the poors are beating them at their game, while the right is upset that RH is interfering with the free market.
> 6- Shorts are not only necessary for a market to function well
If it was merely a matter of investors being able to say "I think this company is going to fail, so I'm going to short it", then yes. But then that quickly creates extremely perverse incentives. Now, it becomes "I have invested my money into the failure of this company, so I'm going to short it even more and publish articles about how this company has no future."
GameStop got a new CEO and had a path to recovery, and the hedge funds didn't like that since they were already shorting, so they doubled-down on the shorting. The funds are using their money to kill a company. While this is technically legal, I think it's incredibly immoral and unethical.
> I don't know how you could possibly argue that when RH is preventing the purchase of a stock, but not the selling (Which pushes the stock price down), and trying to use the argument of "we're trying to protect you from volatility!"
I'm not really savvy on the complete details, but there have been a smattering of comments pointing out that the actual financial details of what goes on when you buy something could be putting Robinhood in substantial counterparty risk that doesn't happen when you sell something.
> The funds are using their money to kill a company. While this is technically legal, I think it's incredibly immoral and unethical.
And, quite frankly, the short squeezers are trying to do the same thing to the hedge funds. I don't think you can condone one and criticize the other; to me, everyone involved in this fiasco have some ethical shortcomings they should look at.
1- RH is one of hundreds of brokers, not all of whom stopped taking trades for opening positions in GME. Is your point then that RH traders are the only buyers? Is it a ponzi scheme then?
2- It is NOT an EULA. Your agreement with a brokerage is not a software license. It is exactly like a mortgage or credit card agreement. Good luck in court trying to claim your were damaged and want to walk from one of those because you did not bother to read the terms.
3- An "investor" is not a pattern day trader. An investor does not take positions with a time horizon of minutes and hours. The kindest would be to call those involved in GME speculators. If these individuals bought GME because they really believed in the recovery story they would have a long time horizon and would not care about a temporary halt in new purchases at a handful of brokers.
4- The biggest short is in the press saying they are out.
4a- Ex: Margin call is triggered on account at GME price of $290. The first bid that RH can hit is at $265. Who is eating the difference? Suppose not all is filled and balance is at even lower price? This is not an orderly liquid market. Try to recall trading in index futures during March. Moves that would typically take weeks happened in moments.
5-Politicians latch onto anything that will get themselves in front of a camera. RH is not impeding the free market. You are free to DTC your entire account to another broker at any time.
6-Are you out front with the same critique when Joe Hedge fund is on Squawk box saying how great the new iWhatever is and how we should all buy Apple even at record highs? Even though he is long and has an interest in it going higher? But it is bad when a short seller publishes why they think a company may eventually fail because of mismanagement or other trends? And the nerve of them to suggest others should sell before it does fail.
6a-Unless GME needed to raise funds by an equity sale, the price of their stock is irrelevant to day to day operations. Do you look at the price of Pepsi shares before buying Doritos? If the new CEO of GME has a legitimate and convincing recovery plan he should be able to persuaade banks to lend... unless the debt load is already so high that even a recovery makes it dubious that they can service their debt.
What is alleged is that Citadel took on more short position after disabling RH.
If this isn't market manipulation then I don't know what the hell is the point of having SEC and regulatory enforcement.
The whole system is in existential crisis. This is now a spin zone: If the Biden administration shows leniency towards Wall Street, his popular base will revolt, especially after AOC has sent out that tweet.
Personally, in hindsight, I think the better course of action would have been to raise the margin requirement on those holdings to 100%. However, I imagine the SEC requires notice of more than overnight on such action which is probably why they have simply stopped trading those issues.
The failure on the brokers then was in not gradually raising the margin requirements the past two weeks when it became obvious that this was a volatility disaster in the making.
The failure of the regulators was, if correct, allowing shorts to be > 100% of the float. They were asleep and should have had a hammer on any dealers who were lending fictious shares.
They did that too
For any contract with vague or difficult language, one has to read in a degree of reasonableness. The intention of that language was most likely to protect Robinhood if it took emergency actions, such as the circuit breakers on stock exchanges that will halt trading if it looks like the computers are doing something crazy (e.g. irrational sub-second runs/crashes of listed stocks). A court could reasonably say that what is happening with Gamestop today is similar to such situations, that Robinhood can protect itself and investors by not executing trades for the period of the crisis. What Robinhood definitely could not do under that language is, for example, halt all trading except on Gamestop. That would definitely not be a reasonable emergency action.
Can someone, who has expertise in this field, explain what the hell happened? How on earth is it possible that all brokers at the same time disallowed to buy certain stocks? Who is responsible for this? The SEC, the FED, the White House, or..? Who gave the call? Who has that much power?
There's three phases of a trade: execution (handled by a broker), clearing (sometimes handled by the broker, otherwise handled by clearing firms like apex clearing or jp morgan clearing among others) and settlement (almost always DTC for US equities).
Clearing and settlement involve counterparty risk - if a brokerage can't hand over the money come settlement, the settlement firm may be on the hook. The risk of this is proportional to volatility. Due to high volatility, DTC increased its settlement costs. This isn't usually a big deal to a clearing firm or a brokerage because retail brokers don't usually have huge exposure to a single equity.
My bet is with the entire world suddenly memed into buying GME, settlement for retail brokers suddenly became very expensive and there wasn't an existing mechanism to pass on this cost down the chain, so halting orders was the only option on short notice.
I said on another comment, brokers should have been raising margin reqs on these stocks the past few weeks as it became obvious this was a volatility nightmare in the making. That would have given them increased protection and dampened the enthusiasm.
Also, I don't think any of these people crying foul consider that those who short stocks do so at constant peril of forced close outs because shares are no longer available to be borrowed. The notice involved can be minutes to hours.
Who was actually buying the shares once retail buys were halted? Was it the short hedge funds? If so, then was this not a conspiracy to allow them to cover their shorts and initiate new ones knowing the price was going to be artificially forced to lower?
Due to the selling frenzy, GME is more volatile than ever but Robinhood is now allowing buys, so what has changed between this morning and now? It seems like the counterparty risk would be even higher than this morning?
I'm guessing with politicians starting to take advantage of the outrage, someone in the chain decided it's better to eat the cost.
The problem is that if big short sellers like Melvin Capital go under that their counterparties are the brokers that will be ultimately holding most of the bag.
This is what I couldn't understand about what the endgame of this would have to be. Because you can't really have a situation where all the shares are bought up sending the shares to infinity. At some point something breaks. Someone has to pay money for those shares.
That could be that retail investors bolt for the door just like a bubble popping and because its difficult to maintain steadiness when you're looking at huge gains that aren't realized. And that is what they thought would happen.
What would be more reasonable would be to liquidate Melvin Capital and anyone stupid enough to invest in them and the holders of GME shares would become creditors against that bankruptcy proceeding somehow. SEC would have to manage that unwinding somehow.
But the problem is that the clearinghouses like Citadel are counterparties to Melvin Capital and they've privately bailed them out, taken over their shorts and will now hugely profit by suspending trading and riding those short positions down. This now entirely makes sense to me as what was inevitable, because while WSB was trying to destroy Melvin Capital they didn't understand that the implications of that were going to be destroying the clearinghouses through counterparty risk. And they were never going to let that happen, so they shut it all down and will eat the SEC investigation.
This is a very interesting outcome just due to the moral hazard it creates with shorting.
It is also a very interesting outcome because a lot of "little guys" just learned an object lesson in what happens when it looks like you are beating the "big guys". They won't let that happen. There's going to be a lot of political rage as a result of this. We're going to have to make a decision in the next 10 years or so if we'd like to funnel that rage towards socialism or fascism, the status quo is going to continue to enrage people.
Most of the zero-commission brokerages sell their order flow to market makers. Those companies just decided they didn’t like what the retail investors were doing and stopped accepting buy orders on those stocks.
People started losing money, LOTS of money. Phone calls were made and they reached the decision to shut down trading everywhere they could.
We'll see how it worked in the coming weeks.
They didn't. It was TD, Interactive Brokers, and Robinhood. Maybe more by now, but they acted alone.
My guess is that market makers that these brokers sell orders to said no. Brokers make a lot of money selling retail orders to someone else.
It's anecdotal but ETrade, TD, Ally Financial all started blocking buy orders at seemingly the same time - yesterday morning shortly after market open. The reason I know this is because I was on the phone with a friend at 9am Central and neither him nor I were able to purchase $GME, $BB or $GMC (he's on Ally and I'm on Etrade). Around the same time I started seeing messages on social media that TD was also blocking traders. I think you're right that the order likely came from MMs and everyone followed through.
Trading212 was also halting trading.
My take is that the stock was basically being manipulated by an angry mob. While I completely applaud their efforts and stand against the unfair advantage that institutional investors have, I can also see where their approach could trigger broader market instability. Let's assume it was a broad coalition that assessed the risk and decided extraordinary measures were in the public's interest.
"Manipulated by an angry mob" is one way to look at it, but "unsophisticated investors attempting to short squeeze billion dollar hedge funds" is another.
Either way, there is a limit to how much unsophistication the market can tolerate and remain healthy.
Citadel
In all likelihood the internal teams responsible for risk management and compliance all determined that this was likely criminal activity, and recommended trading restrictions until the SEC weighs in. Brokerages are typically over-cautious about this sort of thing because they do not want to invite additional scrutiny from the powers that be. The brokerages probably did not communicate these decisions to each other, they just all use similar logic and all arrived at similar conclusions. Those that did not make this decision probably did not observe suspicious trading patterns from their customers.
There is zero chance they all independently came to the same conclusion at the exact same time. There has to be a bare minimum amount of coordination involved, which is likely illegal. Either that or they got an order from the SEC/White House.
Financial companies all use the same logic to make these sorts of decisions, so yes, there is a very good chance that they independently came to the same conclusion at the same time.
It’s also not a clear conclusion even remotely at all. There’s nothing remotely illegal about retail investors coordinating together to profit from a short squeeze opportunity.
If they got orders from the SEC they would likely be shouting it from the roof tops by now in a desperate attempt to shore up their reputation.
Doesn't have to be an official order
Then they should have blocked all trading, not just buying. The benevolent story just doesn't hold up.
They blocked the opening of new positions. You can still buy if it results in a short position being closed. Pretty typical move, almost certainly done to protect themselves from scrutiny by the SEC and CFPB.
Why block buying and not selling?
Why did they all come to the same conclusion at the same time?
They did not block selling, they blocked opening new positions. You can buy if doing so closes a short position.
And that's somehow fine?
It's blatant protection for short positions. These brokers are hamming up the "we need to protect retail from volatility" narrative when they're clearly trying their best to stop their business partners from going bust.
It's sickening.
More like they wanted to preempt possible sanctions from the SEC for failing to take action when they observed suspicious behavior by their customers.
Let's be clear about a few things. Brokerages do not care about protecting retail investors, they only protect their customers when forced to do so by regulators. What brokerages do is protect themselves from liability, financial losses, and scrutiny. They have no problem screwing over their customers when it suits them. They will raise margin requirements and force customers to take a loss as soon as their risk models say that they should do so. They will restrict trading whenever it looks like there is a scam, simply because it wards off possible investigations into their business.
What they can get in trouble for, and RH did get a slap on the wrists for already, is working against their customers' interests for the benefit of their business partners. One brokerage I could believe, but I doubt that half a dozen would all do it at the same time and with the same securities.
That's great, but they should be halting trade of the stock all together if they really believed retailers were manipulating the stock.
I can see the nice narrative of allowing retailers to sell ("capture gains"), but it's indefensible to only allow selling.
That's _blatant_ market manipulation.
they respond to 'likely criminal activity' with certain criminal activity?
Nothing criminal about it, brokerages do this all the time.
I'm genuinely curious: can you find examples of brokerages only allowing buying, or only allowing selling?
I'm not talking about edge cases with margin calls.
Keep them coming.
I want other examples where it's appropriate for some brokers to restrict _buying_ but not selling, especially in the context of a short squeeze, with potential conflicts of interest.
I understand that brokers can restrict trade on risky items as yes, it impacts their risk model. I'm failing to find justification for RH and others to restrict buying but not selling of GME.
Your first link is for penny stocks, and the restrictions revolve around the usual pump-and-dump. You're allowed to go long, and can trade between days.
Your second link is for OTC, and I fail to see how this is relevant to GME. GME is traded on formal exchanges, and brokers that haven't arbitrarily restricted buying aren't having any liquidity issues.
These are examples of specific, ahead-of-time rules for entire types of stocks, not a sudden, reactionary move against particular names.
Except it is still ok to sell these stocks...ok bro...
I'm not sure disallowing buying this stock is worthy of a lawsuit. However forcibly closing people's positions who already are long on GME like some are reporting on Twitter[1] certainly seems like a great reason to be sued.
[1] - https://twitter.com/joemccann/status/1354859879337320452
Imagine signing up for a broker and then being told you can't buy TSLA or DIS because its been doing too well - are they even a broker at all?
Does a broker have a legal obligation to allow you to purchase any stock? I am genuinely asking as IANAL. I can't go into an Apple Store and demand they sell me a Google Pixel. It seems like these places should have every right to choose what services they offer or products they sell.
I wouldn't do business with Robinhood for a number of reasons that go back before this recent spat of issues, I am just not sure preventing purchasing GME is the worst aspect of this.
Are they entitled to prevent people from buying the shares you hold? If people can't buy them, this obviously causes the price to fall. They are making the price of what you hold fall...they deserve to be sued good and hard for this.
>Are they entitled to prevent people from buying the shares you hold?
So if I am long on a stock that gets delisted from an exchange, can I sue that exchange because they are making it more difficult for people to buy that stock?
How is this related at all to the broker question? Exchanges and brokers are completely different concepts.
Because the logic that comment used for a lawsuit was as follows:
>They are making the price of what you hold fall...they deserve to be sued good and hard for this.
That logic applies to a number of entities and not just brokers. If I can sue a broker for this reason, can I sue anyone for that reason?
That’s not how laws work. Just because you personally see a way it can be philosophically generalized or conceptually generalized does not mean laws apply the same to all generalizations. Brokers, exchanges, investment firms, banks, etc., all have specific legal obligations based on different types of fiduciary duty, different service offerings, etc. It can easily be the case that an exchange entity has a legal ability to deny access through delisting while a broker entity does not have the right to deny service in some particular scenario.
I am not saying what the case is for brokers today, but regardless, appealing to some notion of proof by contradiction because of generalizing a behavior is not a valid way to analyze the situation.
>It can easily be the case that an exchange entity has a legal ability to deny access through delisting while a broker entity does not have the right to deny service in some particular scenario.
I realize that. That previously quoted answer was in response to me asking "Does a broker have a legal obligation to allow you to purchase any stock?" Someone answered that with a broad response without referring to any laws. I'm not sure how that leaves me with a responsibility to do a full legal breakdown of the issue.
If your over-arching point is the legal system won't side with the RH users, I'm fine with that premise because I think "laws" are a meme, and the same powerful institutions screwing over the traders who went against them are the same ones who not only influence how laws are written but also enforced.
I thought you were saying in principle their was no basis for users to feel wronged by RH. But this is silly, because you and I both know without a shadow of a doubt that RH shut down buys to protect the underwater hedge funds. It's obvious to anyone with a brain. And I'm confident it's obvious to you. And would be obvious to any judge, jury or lawyer. But does it matter that its true? No. Is there some legal basis that would encompass "you can't shut down trading to protect some hedge fund that you are connected with". I'm certain there is, but it probably won't matter. Because "the law" and "rule of law" is a meme. Power is what matters. And the sovereign power decides what the law is... average joe traders don't have the power and hedge funds and finance in this case do.
I wouldn't have used that exact phrasing, but yeah that is my general premise. "It is obvious" is an argument that might work on Reddit, Discord, Twitter, or HN, but there needs to be some bigger connection for the law to act rather than they did something shady that benefitted someone they have a connection with and that shouldn't be allowed.
It is similar to a lot of the complaints in the wake of 2008. You can't just lock people up for seemingly unethical behavior. You need to find evidence that specific laws were broken. If no laws were broke we need to move on and create new laws to prevent it the next time.
"Does a broker have a legal obligation to allow you to purchase any stock?"
No, I have seen all sorts of seemingly arbitrary restrictions since I started investing (back in college), on everything from mutual funds to ETPs to penny stocks.
Framed another way, can a broker prevent the purchase or sale of stock to bias the asset's movement in a particular direction to benefit themselves or a friendly third party?
Of course not. This is any number of SEC violations
What kind of strawman is that? They let you buy GME until yesterday. Stop being intellectually dishonest.
They're allowing the stock to sell, they only disabled purchases. This will clearly make the stock go back down, benefiting Robinhood's investors over their users.
let's try and keep this in perspective and avoid jumping to wild conclusions based on someone tweeting a screen shot.
First, Robinhood does not make the market or fulfill the orders, so if their market-maker has no one selling a stock they have little option other than stopping people from making purchase orders. You need both sides for a liquid market.
Second, IF these are margin positions then it is not only allowed and legal but also typical for the broker lending on margin to close out the position unilaterally. IF these are cash positions it is a completely different story.
If their market makers are preventing people from selling a stock surely they must prevent customers from selling stocks, right? But you can freely sell the stock.
This is what's pissing me off. I had a tiny "fuck it" position on BB with a stop-loss that kicked in. Now I can't get back in at the lower price and the one way ban is likely why the stock fell under my sell price.
No warning from Robinhood on the current issue either or I would have pulled my sell order.
Forcibly closing under-margined securities positions is totally normal. In a cash account, it would certainly be suspect.
Preventing opening buys hurts everyone who is long -- including a large number of Robinhood customers -- by barring trades that would provide liquidity to sellers and thus dampen the sellers' stock impact. So essentially, Robinhood chose a course of action that disproportionately imposes losses upon its own customers.
The concept of price impact is part of the reason that stock buybacks are able to "return capital" to investors. Demand from buyers pushes prices upward.
No idea if that is a central argument of the case.
Every case I've seen where they've closed out a position, it was on margin, which makes it perfectly acceptable to do. I do not agree with Robinhood's actions today, but this is a very important distinction versus closing out a position that someone took out with cash.
I doubt 99% of their users know the account is margin by default. Also on the surface looks like they disabled the option to 'downgrade' to a cash account.
It also seems pretty scummy to not make this very clear that they can sell without asking.
To a normal person this comes off really wrong (and really it is, let's be honest).
All brokers are mandated to provide the legal terms of the account and margin accounts include language concerning a) the risks and b) what options the broker has available should your account fall below their required margin (which might be higher than the regulatory minimum).
Brokerage accounts, mortgages, credit cards are not click-thru agreements. There is real money involved and real risk to both parties. Not reading the terms before signing and using is an unacceptable excuse for future loss or hardship.
So by that logic predatory lending is completely fine because they technically disclose their terms. Gotcha.
Just because something is in the fine print doesn't make it okay, especially if its marketing completely differently.
Completely agreed. Margin accounts are a strange, convoluted construct, and it was wrong for Robinhood to try and present them as easy or normal.
It’s really kind of ironic. People are knee-jerk blaming RH for closing margin positions because they didn’t fully understand how they work and the risks involved. Simultaneously, the same people are blaming RH for stepping in the way of what very certainly would have turned into a bad trade for a lot of people.
I don’t take RH’s side but it’s hard to see a winning play for them, it’s damned-if-you-do-damned-if-you-don’t.
>People are knee-jerk blaming RH for closing margin positions because they didn’t fully understand how they work
People are typically given a choice to sell other assets, deposit more or close in these situations rather than getting their stock sold at the brief lowest possible price driven by the very broker closing the position. Also, typically it's only a portion that gets liquidated rather than everything on margin.
People typically get a meal on an international flight, but not if they fly RyanAir.
If you run a super discount brokerage platform, you don’t have the luxury of reaching out to all your customers to find out what course of action they want to take.
I’m not sure if RH violated their own terms here, if they did then sure, they deserve a lawsuit. I suspect they didn’t, and this is just a case of people being in over their head.
That is not always the case, certainly not in modern times. If you have a full service broker and there appears to be sufficient time to contact you, they may do so and give you a chance to pick what to close out.
However, very few people use full service brokers. Everything is now automated. The best you can hope for is that the broker provides a mechanism prior to the need to close any position to signify which should be the last one hit to pay the margin loan. As a specific example, Interactive allows their clients to pre-select one holding as the absolute last one to close.
(edit spelling)
The lowest possible price is also the point where the value of your portfolio is lowest and the margin call is most severe. It is completely normal for brokers to immediately close positions when you are highly leveraged and the market is moving quickly on a direction which might leave your portfolio at a negative value - they don't want to be left holding the bag if you take too long to respond. Generally your broker will only give you time to correct things when volatility is low enough that things won't change over the next few hours.
Fair enough. If it was all margin calls from accounts bellow the limit that's acceptable but if they liquidated everything on margin that would still be pretty questionable.
Not that questionable when volatility is extreme. The risk that the price is dramatically lower when the market opens tomorrow may be too large, and they would rather not be stuck with their customers' debt when that happens.
I agree with you. In general I think poorly for RH in several major aspects, but I'm not sure if most of the complaints here understand how a margin account works, nor how a broker - order house relationship creates a liquid market. There's definitely shennigans going on here but it's not obvious they are illegal. Hate the game not the player.
The positions getting closed was a consequence of preventing people to buy id argue. They could have closed them anyway but probably at a higher price
I wasn't aware of that aspect and that does change things. It still can be pretty shady though depending on the total borrowed on margin versus the total value of the stock owned. If someone borrowed $1000 on margin and bought stock that is now worth $2000, I'm not sure why Robinhood would have justification to sell off everything.
Also if Robinhood wins this, theoretically they can do the same to $AAPL, $MSFT, $AMZN , now how does the uber rich , fund managers, union funds, 401k etc etc would react? where does this stop. Its either a free trade market , or its not!
I guess the closed ones might've been only the positions on margin, which might be legal to close at their discretion?
Of course it is because that directly affects current holders of the shares. They're closing off the market from people buying the asset these people hold. Sure you can sell, but what does that have to do with the fact they are causing your asset to fall in value due to direct manipulation?
If this wasn't a corrupt rigging to benefit the hedge funds, they wouldn't be doing it.
Allowing a stock to become sell only will trigger a sell off and this WILL help the short sellers cover ( may be with reduced loss)..
Just allowing selling of a stock makes, free markets a joke.
I am seeing analogies like will apple store sell me a pixel 3a etc. This is not a product robinhood buys or sells , they make my transaction with a bigger shark (Citadel) who is in bed with the hedge fund who shorted ~112% of outstanding shares. When a group of people took advantage and created a squeeze, they block their ability to buy more to strengthen their squeeze.
> Allowing a stock to become sell only will trigger a sell off and this WILL help the short sellers cover ( may be with reduced loss)
Yes. Blocking opening buyers essentially means that closing short-sellers don't need to compete for supply.
It's funny that lawmakers so mad about Robinhood putting the brakes on this[1], when all I had been reading prior to this year how Robinhood was recklessly gamifying investing[2]. Some people are absolutely going to lose their homes / retirement savings at the end of all this. I have no doubt they would have faced lawsuits and calls for regulation had they done nothing.
[1]https://www.cnbc.com/2021/01/28/gamestop-cruz-ocasio-cortez-... [2]https://www.cnbc.com/2020/12/16/massachusetts-sec-o-commonwe...
GME is $261 at close today. If you bought at peak and sold at close, you'd have a 40% loss at worst.
Moreover, this narrative that people are betting with mortgages and retirements is simply unfounded - most people are in on call contacts or with their "stupid bet" funds, or a few thousand at most. Please remember with WSB, and other 4chan-diaspora communities, to seperate the memes from reality.
Totally agree that MOST people aren't betting their futures on this. But for one, it only takes a few instances for it to shape the public narrative. For another, in a country where 40% can't cover a $600 emergency, it doesn't take that much of a loss to dramatically alter someone's life (especially in our current economy). The end result would have been a flogging in the press and to calls for regulation in Congress.
The people who don't have $600 to cover an emergency don't have a stockbroker at all, much less one they use to take bets they read about on the internet. There's, as an absolute measure, very few people actually in on this.
They have (had?) Robinhood
Robinhood has been letting inexperienced investors open huge margin positions, and that is still an issue.
They are also, however, not letting people buy a selected set of stocks the regular way even if they have a large enough balance in their accounts.
They are both valid problems, and don't necessarily contradict each other. Add to that their massive conflict of interest with Citadel's involvement in this entire thing. The fact that you can still buy Bitcoin on Robinhood kinda puts the whole "we are only looking out for you" argument to bed.
> Robinhood has been letting inexperienced investors open huge margin positions, and that is still an issue.
Yeah I think that definitely warrants more scrutiny.
Ok, I know very little about the actual stock market, just some theory.
But what I heard so far was, that the fond was for high risk investment.
"Some people are absolutely going to lose their homes / retirement savings at the end of all this."
So people who will indeed loose their homes, would have lost with high risk investment. Which would be sad for them, but high risk is called high risk for a reason.
If you want to play safe, there are low risk options.
So I don't see need for regulation because of this. For other reasons, yeah, but not that one, unless I am missing something?
Well I think the case for regulation is that they are giving inexperienced investors the ability to make life altering (in both good and bad ways) decisions that they may not fully understand, compounded by a gamified and potentially addictive UI.
> "Some people are absolutely going to lose their homes / retirement savings at the end of all this."
> So people who will indeed loose their homes
This is a rare example of spelling de-correction.
Apologies, non native speaker. And I don't get your reply..
So I misspelled lose with loose. But loose in this context can also be a play of words with lose? What are de-corrections?
Maybe stating the obvious - doesn't this torpedo Robinhood's plans to IPO sometime this year?
The backlash seems so severe that I'm very curious about the rationale behind backroom decisions made that led to all this.
At this point I would expect RH to let you buy, but not sell, RH's own IPO stock hah.
Just like Tether!
Yes this is very bad for RH
They drew extra credit line today, and saying they cannot keep up with the capital obligations. It seems like they are insolvent for a moment today, not sure what's their current state of affairs.
RH requires much more SEC scrutiny really. A brokerage cannot go broke by facilitating trades, it supposes to be a risk-free business.
I have seen some information floating around stating that RH is not responsible for the trade clearing in the RH platform.
Robinhood has in effect cleared all its trades since 2018 as you can see based on their own page.
https://robinhood.com/us/en/support/articles/common-tax-ques...
Okay, sure, so then block the entire stock for a while. What they did was block one side. They blocked people from buying but only allowed selling. Imagine all the market sells after that tanking the price.
In fairness, you can close out your positions if you are long or short. If you are shorting the stock, you are allowed to buy to close the position.
Right, I went long by buying to close my short leg on spreads, holding the long leg.
This is so misguided. Why did people think they can put on a 8 sigma short squeeze on Robinhood of all platforms? That said this has gone mainstream and the ramification will be significant across the board from retail options to overall regulation on discount brokers to order flow sale. Net effect is likely higher cost of trading for everyone.
> Net effect is likely higher cost of trading for everyone.
Good, trades are not zero cost and should not be treated as such.
The system looks very fragile when something like that happens, and by being fragile it makes the stock going down which in return lot of people are loosing money.
They should have stop trading completely on those stock instead they stopped some people / service to purchase it but you can still sell, it's insane.
Inside of about 3 hours, Alpaca, went from blocking sales of some stocks to allowing sales of the same stocks:
AMC - AMC Entertainment Holdings Inc.
BB - BlackBerry Ltd.
EXPR - Express, Inc.
GME - GameStop Corp.
KOSS - Koss Corporation
NAKD - Naked Brand Groups Ltd
NOK - Nokia Oyj
I guess they don't want to get sued (the biggest fear of most companies)
How will this lawsuit get around the binding arbitration clause in their customer agreement?
https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...
I am not a lawyer and I haven’t fully parsed the complaint but the class might be defined as anyone who owned GME and suffered damages or something like that, so not necessarily robinhood customers.
The class is all Robinhood customers, or alternatively, all Robinhood customers who tried to buy GME but couldn't.
Very simple. In a lawsuit they will claim market manipulation and SEC rules violations that are not covered by the binding arbitration. I hope we are not in the situation when a mafia guy shakes you down and makes you sign a contract to settle any grievances that you have with their mafia boss.
If it doesn't, does Robinhood really want to go to arbitration with all of WSB? I wonder who pays the upfront cost for the arbitrator?
I had the same thought because DoorDash was once pummeled with arbitration fees by angry drivers, and it looks like Robinhood doesn't specify who pays the fee. I'm assuming that leaves the burden on the consumer, but maybe their arbitrator (FINRA) has some rule I'm missing.
There are actually law firms that specialize in arbitration at scale.
Customers: "We want to sue you."
Company: "Sorry you can't do a class-action, we have a binding arbitration clause."
Law firm representing customers: "Ok, here is the paperwork for 1500 arbitrations, have fun with that. We can do this all day."
If they rule it doesn’t get around binding arbitration then there is no method for Robinhood to aggregate cases and they might face the costs of having 25,000+ cases to deal with.
I would imagine that this lawsuit is about the motive behind it.
If they go through arbitration they'll end up like DoorDash [1].
[1] https://www.latimes.com/business/story/2020-02-11/doordash-a...
DoorDash had an arbitration clause that said they would pay the filing fee. Robinhood doesn't have that in their arbitration clause. As far as I can tell, they don't specify who pays but it's possible the arbitration agency (FINRA) has some law governing that I guess.
If not, it's probably safe to assume the consumer has to pay the fee.
Remember when Robinhood tried opening checking accounts the first time and made a bunch of claims about SIPC insured and what not, and then the SIPC was all like "We told Robinhood we don't insure checking accounts", and then the FDIC was all like "Robinhood never talked to us about opening, or insuring, any checking accounts"...
Seems like something any financial lawyer would have checked the box on prior to making a HUGE announcement, so it's pretty plausible that Robinhood has no ideas about FINRA's laws about arbitration...
[1] https://www.forbes.com/sites/ronshevlin/2019/01/02/the-robin...
Is it true the company that owns Robinhood also has a huge short exposure to GME?
Robinhood is a customer of Citadel to execute trades. Citadel lent $2.5 billion to the fund that shorted Gamestop. If that fund goes bust, Citadel won’t get its money back. It’s possible they pressure Robinhood to disallow buying Gamestop shares so the price doesn’t increase and the fund won’t suffer a fatal blow. It’s also possible Citadel simply doesn’t accept Buy orders anymore and Robinhood reacted to that by disabling the Buy button for Gamestop shares.
Melvin capital exited the short position two days ago, the loss is realized.
Edit: It was a company announcement material to the fund's prospects, if they lied it would be grounds for a securities fraud suit from their investors.
Sometimes the world is not a big conspiracy out to get you.
No proof of that. Pure speculation. It’s also in their interest to spread such rumors.
That's what Melvin Capital claimed through a PR person, but that's not what anyone actually believes.
But citadel subsequently took a new short position
Citadel securities is an MM in this business, they are certainly delta neutral and not short.
Sort of. Delta neutrality is a target, not a given. Gamma is what forces MMs to hedge. They have been absolutely steamrolled by gamma which would leave them massively net short when you’re facing 100-200% gaps.
They need neutrality by end of day per reg. Bid ask spread is wide precisely because it’s super volatile.
No they don't. What regulation are you talking about?
There's Citadel the market maker and Citadel the hedge fund.
All 3 Citadel companies belong to Ken Griffin/are related and are unlikely to have meaningful short positions..
The company that is Robinhood's customer and pays for order flow is Citadel Securities, which is the market maker and is definitely not short GME.
Citadel (hedge fund), is not short GME as they generally sell boring complicated solutions to rich people (fixed income, insurance, hedges etc). They do invest into other funds (like Melvin Capital), which may give them indirect exposure to the shorts.
Citadel technologies, sells their tech.
Citadel the fund has invested $2.75 billion into Melvin last week. Its likely they want to see an ROI.
Again, Melvin publicly disclosed it is out and if they lie about materially relevant facts it is fraud.
Link? From my understanding this info will only be released in their EOQ filings. They have released nothing definitive.
They claimed they have exited "a" short position. We don't know how many short positions they will have besides that one.
Melvin capital [claimed to have] exited the short position two days ago, the loss is realized.
It was a company announcement material to the fund's prospects, if they lied it would be grounds for a securities fraud suit from their investors.
Do we know if the fine that they would get is smaller or larger than the amount they stand to save by lying?
But there is no reason to think they are lying. They needed $3b to close, they got 2.85b cash bailout, it makes sense that they closed.
The reason is if they can make more money by lying. If still make a net profit even after any penalties for lying, then why wouldn't they lie? It's not like wall street has shown itself to be upstanding actors.
Because they know this will be investigated throughly given the optics and they would be caught in fraud.
The simpler explanation is that the current price point is clearly unsustainable and thus shorting GME is a crowded trade. As one fund exits another fund enters. If GME goes to $1000 people would still be shorting because, again, this price is unsustainable. It would be new people shorting though as most of the funds shorting at $300 would exit by the time it goes to $1000 (hypothetically).
At the same time there is no world in which GME is worth more than $100 in 3 months, so the question now is who will be the greater fool holding the bag when it goes down. Whatever money shorts will lose now they will regain on the way down (although the short sellers losing money and making money might be different funds as some exit and some enter positions). Of course, the real money makers here are MMs that will be collecting a huge bid-ask spread on both directions.
I don't think there is much good news for the retail investors though. As with all bubbles the people who got in early and had the acumen to sell before it pops will make boatloads, but the vast majority will lose.
You're not addressing the point, which is even if they get investigated and get penalties, those penalties are likely to be peanuts compared to what they stand to gain by lying.
When was the last time the SEC sent anyone from these hedge funds to jail? When was the last time they imposed penalties that actually hurt?
We can’t know that for sure, as it wasn’t an official announcement.
* they claim they did
We have no proof of that
There's no proof of this. Look at actual stats, GME is STILL shorted over 100%.
I'm not saying they aren't shorted, I'm just saying it isn't Melvin. There are lots of people shorting GME when it's priced a large multiple of it's long term value. How this gets resolved given the giant short squeeze is another question. Certainly I wouldn't be brave enough to be on either side of the trade.
And even if it is new shorts, then it becomes a race between shorts and longs, which longs would have a huge advantage barring direct manipulation.
How convenient to let out a public statement that they exited the short… Gives them plausible deniability on claims of collusion with Robinhood by way of Citadel!
It's...complicated. Citadel (a fund) loaned a bunch of money to Melvin Capital which has a huge short position in GME. Citadel Securities, a separate entity, pays Robinhood a lot of money for data about its orders and helps execute these orders, while simultaneously using the data to make favorable trades for themselves. Citadel (the fund) and Citadel Securities are both owned by Citadel LLC, but supposedly operate completely independently with no collusion.
"Citadel owns Robinhood" however is completely false.
> Citadel (the fund) and Citadel Securities are both owned by Citadel LLC, but supposedly operate completely independently with no collusion.
ROFL
They don't own it, but they're their largest customer.
Citadel is not a Robinhood customer like retail investors are customers; they're a) an execution partner who executes Robinhood's trades and b) a source of revenue because they actually pay Robinhood for the privilege of doing this. It's worth it to Citadel because they can use the information in the order flow to front-run the retail market.
In other words, Citadel is a customer of RH while the app's user data is the product.
Exactly, but if RH loses the product, it loses the customer as well, so it was a lose-lose situation that was created by the business model.
Seems similar to the users vs. customers (advertisers) situation that most websites have.
Retail investors aren't really the customers, unless they borrow margin really they're the product.
Ain’t that some shit.
I'm not sure why that's getting passed around. Citadel does not own Robinhood. They perform trades for Robinhood though.
No! But the hedge fund that is Robinhood's largest customer does have very large investments in a different hedge fund that had a large short position that they have since existed. But that exit (and corresponding loss) happened before the buy prevention. There is a bunch of FUD going on.
Active discussion here https://news.ycombinator.com/item?id=25947814
Propose shifting the article to the suit itself:
https://www.courtlistener.com/recap/gov.uscourts.nysd.553175...
January 28th, 2021: we witnessed the most corrupt financial act of our lifetime as a one-sided stock purchasing restriction was placed on MILLIONS of people across the United States in the most critical time of “financial battle”.
I'm very much with the WSB folks, but I have a theory about the trading halt that may be more innocent. RH's exposure to margin ensures that when GME inevitably plummets, they aren't on the hook for giant liability. They may behave the same way for any stock that broke circuit breakers that fast, and some of it legit is to protect the interests of their retail investors.
That said, for Robinhood's business model, you're the product, not the investor. Outside of reputational damage they DGAF about the outcomes of individual investors as long as they don't have skin in the game.
RH using protecting retail investors' interests as an excuse now to force selling of shares
I think the suitability standard applies here, and will probably be the main defense for the brokers.
https://www.investopedia.com/articles/professionaleducation/...
What did you expect? When it is free you are the product. Robinhood uses pay for order flow, a system invented by Bernie Madoof to generate revenue. It is really time to leave this broker.
It's not necessarily free https://robinhood.com/us/en/about/gold/
All the paid brokerages have done the same. This is really not about trading fees.
Does anyone know why Robinhood would block the symbols? If the SEC determines some manipulation happened, does Robinhood bear some liability?
I'm not alleging a conspiracy or anything, it just seems odd to me that this kind of action comes preemptively from a broker. I would have expected the brokers to do nothing until the SEC indicates something one way or another, or for nothing to change if the SEC doesn't take a position either way.
I feel like there's some part of this I'm missing.
Citadel is RobinHood’s biggest customer - they pay RH for order flow from “unsophisticated” investors.
Citadel also owns a non-controlling interest in Melvin capital, a hedge fund that is/was massively short GME. Citadel gave them $2.7 billion earlier this week.
It seems very likely that Citadel pressured RobinHood to stop all purchases so that Citadel’s investment is secure.
There are additional rumors that Citadel went short GME right before the brokers stopped allowing people to buy, only allowing them to sell.
Investors and key shareholders sacrificed Robinhood and are willing to eat lawsuits because hedge funds' GME positions tower over all of that.
As I understand it, Robinhood has VC investors and uses third parties to execute trades (that pay Robinhood for it) which stand to lose on GME. The talk being that they pressured Robinhood into this action so they wouldn't lose as much money.
From what I understand, Citadel, the mother company of Melvin Capital, one of the largest short-sellers that got in trouble, is responsible for 60% of Robinhood's revenue, buying user data from them.
Robinhood might be protecting their largest customer.
Edit: it's possible Citadel pays Robinhood for something else instead. And it's possible they don't fully own but only invested in Melvin. Still, there do seem to be pretty clear ties.
It is already going up a lot in AH. It will be harder to show damages if this gets to $500 again. Also the halt was in the premarket, but GME surged at the open to new highs, until falling in half in mid-morning. So this further weakens the narrative and causality that Robinhood's actions caused robothood customers to lose money. The stock tanked maybe because it was just simply overbought, regardless of Robinhood's doing.
wow, that didn't take long so I was wrong about TV ads.
https://news.ycombinator.com/item?id=25943676
Next prediction: obviously Robinhood can kiss their IPO goodbye. They are hated by both sides now - bankers and investors. Frankly, I hope they will go under, get shut down but not before 20 AG and DOJ/SEC takes them to bleachers.
Too bad every user signed an arbitration agreement which prevents class actions from moving forward https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...
Also if Robinhood wins this, theoretically they can do the same to $AAPL, $MSFT, $AMZN , now how does the uber rich , fund managers, union funds, 401k etc etc would react? where does this stop.
Its either a free trade market , or its not!
How many Dexes for company shares are being built right now? Which company will be the first one to get listed in one of those? When will it happen?
Even e-trade is blocking purchase orders:
In addition to the class relief, they're also asking for an immediate injunction to reinstate GME. Good.
all you need to prove is , how these things map together w.r.t GME
1) transactions between Robinhood and Citadel (even some % of their GME trades would have gone to Citadel) 2) The deal between hedge fund and citadel
If you can prove that its because of #1 and #2 , RobinHood arrived at this decision, its game over?
or is it?
Robinhood is done as company, no matter what happens with the lawsuit. They had one job, trade stocks, and they refused to do it at the most critical time under very shady circumstances. How can anyone trust this company with their financial future after today?
IMHO you make the best point of all this far. Their customer base is essentially WSB wannabies, and they've managed to piss them good.
I am currently in a country where robinh does not operate, but I'd be absolutely reluctant to use them now even if it became available.
What about all the other retail brokerages that did the same thing?
Presumably their customers are free to sue them.
Yeah I think my point is more that the outrage is not proportional. Other brokers did the same thing and aren't in the spotlight at all.
Chance of lawsuit = potential upside * success chance * number of affected customers * unhappiness of customers
Robin hood had the most affected customers, so go the lawsuit and most of the bad press.
The irony of the company's name just occurred to me.
this increasingly looks like an episode of "billions"
How could I join?
Populism! Its popping up in every corner of American life
well deserved
Mate you deserved more time. I'll always be a fan!
Never thought I'd see him around these parts
I know :( it’s sadness
Suuuuper... Suuuuuper Frank.. Suuper... Suuuper Frank..
I think I'm the only guy on the internet who's rooting for the short-sellers.
why?
Because the anti short-seller movement is so dumb. Shorting overvalued stocks is a good thing.
To be honest, the more I'm watching this, the more it seems like the same behaviour we saw from the Trump supporters in the build up to 6th Jan. Baseless accusations, incredible emotive language, fact-free discourse and massive ramp up in rhetoric. Progressively wilder accusations with no proof. They don't seem to understand that mass hysteria actually is a reason for a trading platform to bring in limits - especially when there's margin around, and its actually not that big a deal for a hedge fund to go bankrupt. The idea that the entirity of Wallstreet is co-ordinating to back up some hedge fund is... laughable. It's all very high tension, low information at the moment and that seems dangerous. What was the result of this ever going to be? A narrative of being screwed by wall street start to end.
Yes it is very similar in that you seem to have no idea what you are saying about either issue
You don't do anything to dissaude me by providing no information to actually dissuade me, but just emotionally reacting. This is the exact sort of hysterical emotoinal reaction to events that shows how dangerous a situation we're in.
Dudester, you're just saying random shit and then expecting someone to write a peer-reviewed paper in response? Dream on.
I can't be like "Rust is a shit language" and then expect someone to write a treatise in response. It ain't never gonna happen.
"Dudester"? You'll note that in other parts of the comments in this thread we actually got into some details about things like counter party risk and why trading platforms have aggregate risks to manage, but we didn't manage to have that conversation in this part of the thread becuase the level of argument was pretty much just "I won't address the point you're making I'll call you names and then call you stupid".
Well fine, by the sounds of it, you're the sort of person who also makes those Rust threads unbearable by commenting despite having never worked with or near Rust but calling people names because they have experience and have formed opinions. Let's just put it this way, the way the HN commentary has come across right now is like a guy in a bar telling your about a horse you should place a bet on. That's the level we're at, and that's why I talk about the mass hysteria as the more relevant point, because your average Joe has no business reasoning about dynamics of stock prices of fairly illiquid crappy retail stocks.
As a brokerage or an exchange, you are required to guarantee best execution and fairness among your customers.
It's true that it could legitimately be considered an exceptional situation requiring exceptional mesure.
But in that case the only way to do that while simultaneously respecting your obligations would have been a complete halt on that instrument.
So the market manipulation accusations seem legitimate.
If Robinhood users are massively long GME, a lot on margin, that's a systemic risk for RH. Firstly, there's the risk they're going to lose a tonne from these margin trades. Secondly, there's a risk they're going to destroy their business when the shorts unwind and GME turns out to genuinely be worth $20. Thirdly, if the market does go up there's a whole load of counter party risk where these short sellers don't exit, they go bankrupt. Fourthly, if this behaviour continues their business model is fucked because no one will be paying for toxic order flow.
There are lots of really good reasons why RH would want to try and get their clients' net positions flat. Since they are exposed to an aggregate risk that individual clients aren't exposed to - and obviously, those clients won't think about this, but they have operational risk that RH can't execute trades.
Let's save these "as bad as the capitol riots!" hot takes until WSB organizes a protest that takes over Citadel HQ.
Trading securities and/or advocating for a free & fair market in which to trade those securities =/= literal violent insurrection.
I'm absolutely not saying it's as bad as the capitol rights, I'm saying I'm seeing the same disinformation, unsubstantiated claims and absolute freedom from fact based reasoning we saw in those other communities. I made it a point to go and look at the communities that were pro-Trump in the aftermath of the election. There are clear similarities. I'm not saying it's the same thing, but I think we need to seriously take a step back and look at what's actually happening, and what's happening isn't a level headed discussion about free markets. It's a conspiracy riddled hysteria where many people are claiming they're never going to sell a crappy retail stock for what can quite clearly be understood to be emotional reasoning.
Virtually all trading platforms have blocked users from opening positions on these symbols. Why is Robinhood being singled out?
Also, considering 99.9% of people jumping on the bandwagon have absolutely no idea what they're doing, they'll probably thank RH down the road for preventing them from losing all their money.
Robinhood is what all the people jumping on the bandwagon used. And this coincided with a sharp price drop on all of these stocks blocked. The reason was "Due to ongoing volatility", but any trader will tell you volatility is how money is made. It took all of the normal people out of the game, and tried to scare them into selling so that the ones holding the shorts are in a better position.
And to add to that, a company (Citadel) that pays Robinhood a large amount of money for their data is one of those with the short positions. So Robinhood itself has a stake in this.
Disclaimer: I have no idea what I am talking about and this is only my opinion.
> And to add to that, a company (Citadel) that pays Robinhood a large amount of money for their data is one of those with the short positions. So Robinhood itself has a stake in this.
That’s quite a claim. Got a source on that?
Again I have no idea what I'm talking about, but
https://www.equities.com/news/robinhood-is-said-to-get-40-re...
https://twitter.com/justinkan/status/1354853920762253315
I'm no market expert, but I know that when cash is flowing between two companies, they generally have shared interests.
I've been buying on TDA and Schwab today... I think that TDA only restricts you if you are on a margin account.
I'm on a cash account because I like to avoid their "pattern day trader" protection.
Could someone please confirm this, but as I understand they blocked buys but not sells, or the other way around? Instead of freezing the stock, it drives the price in one direction.
Correct. They blocked buys which would drive the price down, benefitting Citadel, their main source of revenue. I don’t know if that’s why they did this but that’s what the lawsuit is for: to find out. At worst, Robinhood is going to close because of this and their and Citadel’s execs might face prison for manipulating the market.
Thanks for confirming! What happens if this kind of thing happens due to an unintentional bug? Do execs go to jail for market manipulation?
Not a lawyer, but I imagine it’s similar to how industrial accidents are treated. If there was proper due diligence and precautions, and it was truly an “act of God” sort of thing, that’s understandable. If on the other hand their processes are not up to snuff and they moved a bit too fast and broke one too many things, I imagine they wouldn’t be treated as nicely.
Vanguard hasn’t. Fidelity hasn’t. TD Ameritrade hasn’t (other than not allowing margin for shorts). I disn’t check Schwab but I don’t think they blocked purchases either.
Many trading platforms still allow trading. And there's no real reason not to, except to protect the hedge funds that fucked up.
Edit: And I just found out my platform (Binck) doesn't accept trades anymore.
Edit: Apparently they do accept trades, but only if your limit is close to the current price. I was increasing mine because it wasn't executing at the lower price. Eventually I did get in at the lower price. We'll see where this goes.
Robinhood was the first.
DeGiro is still good. Bought GME there today.
I also use DEGIRO, and it is a good broker, it doesn't do this scammy pay for order flow thing that Robinhood and Trade republic are doing, that said, I didn't buy GME and I would not recommend buying it.
It is super risky, but there's a definite path to profit here: the short-sellers sold too much stock. 140% of the shares, it appears, which means shares were borrowed, sold, and then borrowed from the buyer it was sold to and sold again. And when all those shorts run out, the short-sellers need to have bought shares back again. With share prices this high, they're going to have to pay a lot of money for them, and people holding shares could make a ton of profit.
But it's definitely risky. You could lose a lot of money. Many of the people buying are also doing it to stick it to the hedge funds and give them a taste of their own medicine.
> Virtually all trading platforms have blocked users from opening positions on these symbols.
Can you be more specific? Robinhood & Webull are the only two that I'm aware of.
TD Ameritrade is preventing me from opening positions right now.
TD Canada has prevented some forms of orders (e.g. market buy), but not limit buy - I think this isn't so bad as their clients might expect the quoted price and get screwed at open because of volatility
Ally was as well (I am not sure who fills the orders), but Fidelity was still working for me.
tastyworks went to close-only @ 11:39AM per an email, and opened it back up at 3:12PM today. They blamed Apex clearing, which is the custodian for tastyworks accounts.
212 did this aswell.
Tastyworks also blocked opening new positions.
blocking options calls from account that can't cover the position: good, probably saved people from getting into debt
blocking purchases of shares from accounts that have enough to cover the contract: highly sketchy and worthy of deep scrutiny
some broker did 1, some did 2, but form screenshots alone is hard to tell which did which
>Why is Robinhood being singled out?
Likely because it has the most impacted users. I suspect other platforms will get lawsuits as well in time if this one proceeds.
I am so curious what the long term plan for GME is. Is it to hold the long term? If it’s not, what are the plans to unwind?
This is the "buy high sell never" part of the meme.
Imagine there are only two shares GME.
You buy two GME for $1ea. Two short sellers needs 1 GME each lest they hemorrhage money on fees. You loudly announce your plan to hold half your GME forever. The short sellers trip over each other to pay you stupid money for the one GME you are selling. You then sit on the other GME for awhile, maybe sell it in a year or two for a buck. In any case despite buying two and selling one you've made a ton of profit.
Now scale this up to several million people.
> Now scale this up to several million people.
And many more shares, most of them hold by corporate and institutions (some of those institutions will be happy to lend shares as well). Also more shares can be issued.
My understanding is the long term plan is to try and bankrupt some hedge funds or drive the SEC/regulatory bodies to enforce rules against the elite class of investors; its not entirely about profit for everyone.
There's so much discussion on HackerNews today about people who are going to lose out on these stocks where I've seen a healthy amount of comments on Reddit in the last week of people buying stock merely "for the lulz". I think there's a non-insignificant amount of "investors" who have tossed paltry sums at $GME with no plans on making a return.
Honestly, I'd have done the same, but I don't do any form of stock trading so I don't have accounts on any platforms to do it. I've done the same with various crypto shitcoins and made a few bucks off throwing $50 or $100 at something I don't expect to ever see return on too.
I am curious what the average holding is for GME. $100 * 2 million WSB subscribers is $200m to make a stock go to $24b market cap. That isn’t a lot of cash. People are posting screenshots with $10k+ holdings on WSB. Monday volume indicates a massive amount of stock movement.
At some point those shorts are due - if the owner of the shorts doesn't hold the necessary stocks, it's going to be expensive.
That's my understanding. What happens afterwards? No ideas. Some people want to see hedge funds burn, I would not mind that either.
Short sales do not work like that. You can have a short position indefinitely, as long as you pay the margin interest and meet the margin maintenance requirements. Options positions are another story, in-the-money calls do require delivery of the shares by the expiration date, and next such date is tomorrow.
Nobody is going to make the hedge funds burn. At this point the hedge funds are fleecing whoever was buying shares or options yesterday (who do you think they bought them from?).
Exactly, “wall st” as a whole is making bank off this volatility, as well as Blackrock and Fidelity finds. The real way to actually stick it to wall st would be if all of main st sold all their equities..
Thanks for teaching me something I did not know! May the post above be forever a monument to my ignorance!
shirt sellers borrow stock, then sell it. when the shirt is up, they are required to buy new stock and return the borrowed shares.
if the stock price is higher when they borrow and sell, and lower when they buy and return, they make a profit equal to the difference. they lose money if the stock price goes up. all these people buying GME and driving the price up will hold GME stock, and the shirt sellers will be forced to purchase back the stock at premium prices. even if the stock price goes down slightly, the people buying up all the GME will still profit.
but more importantly a lot of people's goal is to f over a major firm that constantly over leverages itself.
That’s main goal. But what is long term goal of the position. After short sellers go bust. What are people going to do with their positions?
There will always be more short sellers to bet on the overpriced stock to go down ;)
I believe the original r/WSB idea was to induce a short squeeze and cause Melvin Capital to lose their shirts.
That’s the main goal. But what’s the plan afterwards? I see posts with people holding a non trivial amount of stock. Losing $100 to own hedgefunds is different than risking $10k+.
Some of the complaints from Robinhood users ring of entitlement. They didn't know what they were doing or what rights they actually had. And certainly they must not have read the ToS where Robinhood is granted various terrible powers over their money and trading access.
On the one hand it's great that anyone who wants it has access to the financial markets. But I mean, you should probably know what you're doing before you start speculating. Are people really going to make a moral issue out of not being able to sell their bad bets to a greater fool?
It's like everyone wants access to swim with a dangerous group of man-eating sharks and then complains when they get bitten.
I don't think "entitlement" is an appropriate description for people angry at their trading platform for suddenly working against them to spoil trading opportunities and cost them money. It's like saying the victim of a robbery is entitled because he's upset at criminals taking his money.
Why should they care about the ToS? It makes perfect sense to hit the company where it hurts by ruining its reputation and that's what they're doing.