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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comments
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)
They shouldn’t be able to censor stocks on the app. This is separate from trading functionality