Not even the smartest people on Blind are immune to reactionary conspiracy theories. There's one central securities depository called the Depository Trust Company (DTC). When you buy a stock on Robinhood they take the order to the DTC (usually through an intermediary called a clearinghouse). The DTC fills the order by finding a seller. The same thing happens when a hedge fund wants to buy securities, or a bank. But there is associated risk with matching a buyer to a seller. To resolve this, there is something called the settlement cycle wherein there is a 2-day holding period where the buyer puts down a clearing fund deposit to collaterize the transaction. The transaction is guaranteed otherwise, though. After the two days, they get the deposit back. Here's the kicker: "the Clearing Fund [deposit] takes into consideration mark-to market and volatility (among other factors)." Volatile stocks are stocks that have large price changes over short periods of time (like GME, BB, and AMC). That means the clearinghouses/DTC were requiring firms to front excessively high collateral in order to buy shares of these companies. Many of these firms like Robinhood (probably) simply just didn't have the cash on to front the collateral to fulfill the MASSIVE influx of buy orders incoming for these stocks. They simply couldn't. So they de-listed the stocks and made it impossible to take any buy actions. They kept the option of selling open, because they had a fiduciary duty to allow their customers to do whatever they physically could with their own shares as long as the shares were trading. It wasn't exactly their fault the price collapsed -- it was a byproduct of not having enough money to fulfill the orders. On the other hand, the Institutional Investors have plenty of cash lying around. More than enough to pay the collateral. And if they don't, they can borrow it from each other. So they continued trading, usually executing strategies that were counterproductive to the retail investors that are currently holding the stock hoping the price will return to yesterday's levels. Conclusion: Despite the existence of platforms like Robinhood, retail investors still can't afford to play the game when the stakes actually get high. Also, please don't be so quick to jump to conspiracy theories and think about if there's another side to what's happening. Jumping to conclusions is becoming increasingly common and it's killing us. Source: https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html #GME #robinhood
Thanks for posting this!
It's true what you are saying but there is no evidence that Robinhood didn't have the capital for DTC deposits. Secondly, even if that was the case, they could have been honest up front instead of putting up a guise. It is suspicious that their justification comes after an onslaught of negative reviews. You don't just suddenly block all one-sided access to 13 stocks and say "Amid significant market volatility, it’s important as ever that we help customers stay informed" this morning. Thirdly, Robinhood has always been a platform where extreme risk taking is supported. Massive margin accounts, risky options, etc. People have a right to angry and suspicious at Robinhood after their morning statement was made. They're playing with people's livelihood and money right. They have no right in dictating market prices by blocking off demand so they better have a good justification for it. We don't take half-assed answers in these critical situations. Even now the CEO barely explained the justifications.
yes not defending Robinhood or how they handled it in any way. be suspicious of Robinhood, wait for more information but don't jump into the "1% colluded against the 99% bandwagon" yet - that's all I'm saying
We’re not jumping on that band wagon. It’s not war with the rich. It’s war against hedge funds that whipped out so many people’s investments in shady fashion
OP think about it, if this was indeed the root cause then why were they not open about it? They could have just as easily posted a video of even reached out to the media about it.
"Many of these firms like Robinhood (probably) simply just didn't have the cash on to front the collateral to fulfill the MASSIVE influx of buy orders incoming for these stocks. They simply couldn't" Doesn't look that great on a company either
Yeah if they didn't have the collateral to fulfill the buys they should've been upfront about it. This didn't happen in under 24 hours. It's been happening since end of December. They had plenty of time.
So basically what you are saying is that Robinhood was under leveraged. If so, it could have increased the margin maintenance to 100% and closed positions in margin accounts if necessary. If that isn’t sufficient than Robinhood is doing something with my deposited money that it is not supposed to do. As simple as that.
@VMware(OP) answer this pls 👆
They did. And actually raised margin to 300% if Reddit is to be believed. Still wasn’t nearly enough. And they sold peoples shares at the bottom - guess who scooped them up since buying was locked out when they did it?
This would explain then raising margin requirement to 100% and margin calling / liquidiating anyone using margin to buy these stocks, but not disabling buying with settled cash.
Troll OP not answering the real question and just parroting an excuse he found online!
https://news.ycombinator.com/item?id=25950659 because for real time reading, every account is margin account, here is some good reading to understand what happened
If you don’t have the means to support volatility and the cash to hold up to your offering as a brokerage then you need to Quit Scamming the people and eff off.
interesting that you think a startup whose primary business model is to let common people buy some stocks should have the cash reserve support a class warfare against hedge funds.
That’s your way of seeing it. Super biased view btw. If you offer a service you better be able to handle the pressure during crunch time. That’s why uptime is so important to tech companies... it’s their equivalent to Robin Hood having enough money to continue providing the services THEY OFFER. No one told them to pick up a gun and a badge. They chose it themselves. So when a gunfight happens they should be well prepared to handle that pressure or they need to GTFO