Was it really Robinhood's fault?

Uber
bagbagbag

Go to company page Uber

bagbagbag
Jan 30, 2021 26 Comments

It was their clearing firm DTC who increased collateral suddenly from 3% to 100% from brokerages for those scripts.

And DTC restricted only for BUY orders. In cases like Fidelity, they didn't put any restrictions because their clearing firm National Finance services did not need 100% collateral.

Because of T+2 settlement cycle, DTC couldn't take a huge risk of funding this volatility. Imagine, if Melvin Capital covers their shorted shares, but on settlement day (T+2), they don't produce funds. DTC will have to chase behind Melvin and there are high chances it will completely shut down market as DTC handles 90% of clearing of all the stocks!

Basically, the whole system is broken. We cant blame single entity in this episode.

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TOP 26 Comments
  • Microsoft / Eng
    cholical

    Go to company page Microsoft Eng

    cholical
    1. Robinhood should have been upfront about this instead of hiding behind "protecting the customer"

    2. The ceo went on cnbc and said this isn't about liquidity. That was a lie

    3. Robinhood isn't transparent with their relationship with Citadel which can be seen as a major conflict of interest.

    What I think Robinhood should do to repair its image and trust:

    1. Disclose/end it's relationship with Citadel even if the is not a conflict of interest.

    2. Replace the CEO and everyone involved in making the decision

    3. Rework their finances so that they have more to put up for collateral.

    4. Use multiple clearing companies so there's no single point of failure (not if this is allowed)
    Jan 30, 2021 3
  • Amazon
    🦙alpaca

    Go to company page Amazon

    🦙alpaca
    Regardless of technical difficulty, Robinhood failed to earn trust. Their PR team should not be hired as PR team at any company because they did a atrocious job. The fact that Robinhood only said “to protect customers from volatility” instead of “our system is under stress and cannot process transactions” shows how shady this company is
    Jan 30, 2021 1
  • New
    gme21

    New

    gme21
    I think everyone is trying to come up with ways to excuse what happened. The system protects these hedge funds that over leverage themselves and they know if an event like this past week occurs they will get protection. That’s why they don’t care. The retail investor does not get any protection. Their excuse is always that the market will collapse if we don’t protect the reckless investments that hedge funds make. What ever anyone wants to believe is your right. But please, it’s almost blatant and obvious that the restrictions helped only the short sellers. The restrictions only benefited one side. Why not completely restrict trading for buying and selling? No more excuses.
    Jan 30, 2021 1
    • I think the fault in Robinhood is not being prepared for unexpected events like this that cost its customers hundreds of millions if not billions of dollars.
      Jan 30, 2021
  • Google
    afjig

    Go to company page Google

    afjig
    It’s also messed up that Robinhood hid popular stocks from search. I couldn’t look up what price GME was at in the app the day they limited it.

    They shouldn’t be able to censor stocks on the app. This is separate from trading functionality
    Jan 30, 2021 0
  • Like someone said earlier if the big boys wanted to buy, systems would magically start working.
    Jan 30, 2021 0