"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation."
Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line.
I watched the CEO on CNN tonight, and while I found him pretty difficult to watch, this is a very difficult position to be in. If you admit on TV that your company is experiencing liquidity issues -- even if temporary in nature such as with clearing custodianship requirements -- you run the risk of triggering a greater panic through customer withdrawals/redemptions.
This could turn into a run on the brokerage pretty quickly, and probably already has in some measure, especially after a day of massively lost customer trust. He certainly didn't help it by going on TV and lying about their liquidity issues. They probably would've been better off by issuing a statement and keeping him off TV.
> Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line.
Perhaps you can help me understand something.
In the absence of margin trading, if I deposit $100 of cash at my brokerage, then I order my broker to buy $100 worth of Stock A, how does credit and the possibility of bankruptcy enter into the transaction at all?
After all, if I give my kid $5 and send him to the store to buy some milk, he doesn't need to find 'liquidity' or a 'credit line' or risk bankruptcy.
They have to have a certain amount to cover the value of all the stocks held by their clients so when 50% of their account holders have a stock that suddenly gains 2-20x value things get tight. In your analogy the price of the milk is relatively stable in the case of gamestop the value of the milk is fluctuating wildly between the time you sent the kid, when he got to the store, when he picked up the milk, etc etc. except the kid is legally required to deliver the milk or make you whole.
In RH everyone who opens an account starts as an Instant amount.
The Instant means any security sold you can immediately use that cash.
Normally you can't go that. You have to wait 3 days for it to settle in the clearing House. The Instant accounts are using margin to make the cash instantly available.
Based on my very limited knowledge, it is my understanding that banks/brokers don't actually consider the deposit to be valid until several days after the transaction. Even if you deposited cash they would probably find some way to delay letting you use the funds pending some 'internal checking'.
So in Robinhood's case if there are many people depositing dollars to buy stock then that could be their reason or excuse to not have funds available for trading. Just a guess.
The people using Robinhood are to some degree trading on margin, that means that they are trading with money they don't have in their account, which means that Robinhood also does not have it, at least not from you. They need to have a buffer of money to deal with the borrowing, which in this case they almost ran out of.
Not an expert by any means, but I know in the world of trading there is often the requirement of guarantees before transactions are accepted. It's like your kid, at the store, was asked to show he actually had $100, before his $5 could be accepted and milk handed over.
I’m not keeping my money with a financial institution that lies to me. End of story. Transfer initiated on my cash, and I’ll deal with moving stocks in the morning.
I’m not keeping my money with a financial institution that lies to me.
I know for a fact my bank lies. They've been fined hundreds of millions of dollars for money laundering (it's HSBC). A few years ago I looked in to moving to a more honest bank, but I couldn't find one that also met basic criteria like having access to cash points in the UK and having a half decent mobile banking app. Literally every major bank that operates in the UK has stories of doing frankly awful things.
Since then I've joined Monzo, who do seem to be genuinely above board, but finding an honest financial institution is really hard.
Hint: every broker will do this. If you think any broker (let alone retail) will let the client's risk taking threaten their existence, you are deluding yourself. It's a little bit like insurance: as long as most clients take diversified risks and don't push the system to it's limits, the system works. When a significant portion (majority?) of the clients all pile into an increasingly hairy position, the broker will step in and prevent the clients exacerbating the situation further.
Your bank actually has to lie to you to remain solvent. All banks do. The Central Bank also encourage it.
Last year you saw both that banks were 'forced' to withhold dividends and they were perfectly capitalised. Both cant be true of course.
If they hide it from you your money and everyones money is safe. If they tell the truth everyone loses, so it is actually the best outcome for you and everyone else. The fractional reserve system relies on not everyone withdrawing their money at once.
I already know when it comes to volatility, they are going to choose IBKR over my account which is good because usually "my account" is fine but its the others who are doing really crazy things.
I know IBKR will be around in the morning. That's why I love them.
Do users actually lose the stocks, if something that happens to the Robinhood itself? I live under assumption that it is not happening. In any case stocks should stay belonging to the folks who purchased them.
Robinhood is a joke. Not just because of these shenanigans, but because their lack of technical stability and customer service is unacceptable. They reliably crash on every major trading day. And there's no US based support.
Never ever use a broker where you can't pick up the phone and talk to a real human being. They all have zero commissions now so there's no excuse.
They're also a joke because they are, as far as I'm concerned, not a "brokerage". They are an app designed to convince people that they understand how to trade stocks, in order to sell them stocks.
A real brokerage should, in my opinion, and some sort of duty to act in the best interest of its clients.
A brokerage should not have huge backlash because its users got margin called, and those users didn't even know what a margin call was.
They should not have huge backlash because its users stop-loss orders were triggered, and then executed at a lower price.
This is just confusion that shouldn't exist, because a reasonable brokerage shouldn't be luring people into these risky positions just to make a buck on the sale.
I don't understand their PR strategy though. The Webull CEO has been much more transparent about the kind of collateral requirements their exchange was dealing with via DTCC. RobinHood could have explained the same - it's not their fault for having insufficient liquidity when the DTCC's collateral requirements go up.
And why exactly did they have to let people sell GME shares? In light of the current situation, it sounds to me like the responsible and impartial thing would have been for them to temporarily suspend all trading of GME - not just buying.
This looks like a preparation for defense against the lawsuit(s) for disabling trading for a couple of stocks. They will use the "We were not manipulating the market, we were trying to stay afloat!" excuse.
"I watched the CEO on CNN tonight, and while I found him pretty difficult to watch, this is a very difficult position to be in. If you admit on TV that your company is experiencing liquidity issues -- even if temporary in nature such as with clearing custodianship requirements -- you run the risk of triggering a greater panic through customer withdrawals/redemptions."
The key difference is that Robinhood isn't a bank. Bank runs are bad because banks are assumed to be massively liquid---in the average case, if you walk in and provide the proper ID, they can hand you the cash you're asking for. If they can't, one of their primary value propositions is at risk and people start demanding their money out because the bank isn't able to provide the services of a bank.
This is not (and is not expected to be) true of stock brokerage. Nobody generally has an expectation of moment-to-moment liquidity (or even closure of deals), even in a stock with significant availability. However, a brokerage deciding independently "You're not allowed to buy this one stock" is unusual, and can cause people to start backing towards the exits.
How could they trigger a "run"? Surely they have the money to repay every single customer what's in their account and you're not implying they're doing a Mt.Gox? Some customers may leave, but that won't hurt the remaining customers, will it?
It would be more of a run based on principle and fear rather than practicality. I can see why an investor would move to a competitor after seeing that RH can just stop anyone from trading, anytime.
Yes, it's called SIPC and is (kind of) equivalent to the FDIC for banks. However it only covers up to $500k, only covers cash, stocks, bonds, CDs, and (I think) mutual funds. It does not cover options or future contracts.
Also it will only attempt to return the securities you 'lost' not their cash value. If you lose a lot of money due to not being able to sell your stocks for several days, that is not covered. So if you held 2000 stocks of GME, the SIPC will (eventually) give you back 2000 stocks of GME, not the cash value of those stocks when Robinhood went bankrupt.
OK, how hard it is to increase your credit line in real time. We are not talking 100s of billions here. Had RH reached out to the likes of Chamath or Musk, they would have gotten a credit line in minutes.
This is no excuse for screwing retail investors. Horrible management. I mean, I am some random dude who can think of these, these are professionals running multi billion dollar enterprises, c'mon.
And right after saying they don't have any liquidity problems said, "We're #1 on the app" while retail investors were losing millions because of expiring options/stocks. Absolutely tone-deaf.
Not denying that all securities have risks, but that was a bad response imo.
> In the entire interview there's no real answer to any question.
You know, I've been on many job interviews this past year, and when that happens, I immediately know not to go further with that person (and if it persists, the company).
If it's all truthful, I don't understand why he doesn't just speak concretely. Eg, "For every $300 share of GME, based on the volatility, we were required to deposit $50/share as collateral. We expected 1,000,000 shares to be bought and don't have $50m we can post." Also, if true, shouldn't other brokerages would be able to confirm/deny this as they would be subject to the same depository requirements?
Why? For a brokerage it's an existential concern. And they can't publicly admit it's a problem either, because that would likely trigger the brokerage equivalent of a bank run. (Of course, odds are they're already grappling with that as well.)
I don’t understand how all of a sudden the shift was made onto the insolvency of RH and that the discussion is less about the original conditions that led up to this.
I just finished watching a video from Louis Rossmann [1] as well as one from Bruce Fenton [2]. In his video, Rossmann covers the technicalities and systems behind actually __making__ a trade with an app like RH. The videos were very informative and I learned quite a lot.
With the exception of his recent interviews, it isn’t exactly clear what Robinhood was supposed to do differently. If my understanding is correct, clearing houses required more money up front to perform trades - RH didn’t have it so they stopped the trades unidirectionally. People got upset that they couldn’t buy but could sell which made it seem like RH wanted to manipulate the price - but isn’t it better than the alternative, the inability to both sell and buy would seem to me worse than what was done. Imagine them closing both and preventing people from selling if a crash occurs. The discussion would simply be « Robinhood stole our gains and wouldn’t let us move our funds ».
Now, should it be the case that more money is required up front, intuitively it makes sense, I mean, who is supposed to front the bill on those 5000% returns? The hedge fund that just went bankrupt? Where exactly does this money come from?
Isn’t RH just trying to play within the realities of the current system?
To be honest, it doesn't really matter. This isn't about whether Robinhood technically must or must not do what they're doing, but that the system is setup in such a way that all these claims of "supporting the people" are fundamentally 100% bullshit.
Robinhood tanked their credibility by letting the mask slip and people are on that like hyenas because of the irony. Really though, the focus on them is a distraction from the much larger slip by the entire financial system.
> these claims of "supporting the people" is fundamentally 100% bullshit.
what a world where a free platform takes an action to stay solvent and in business and its a bullshit claim that theyre helping their customers. i guess they shouldve done the more helpful thing and gone bankrupt, illegally allowing trades they cant cover.
> Really though, the focus on them is a distraction from the much larger slip by the entire financial system.
Exactly. I also watched the recent CNBC interview with Chamath Palihapitiya [1]. I would like to it, but CNBC keeps taking it down.
In any case, the host really doesn’t seem like he’s there to « get to the bottom of things or to understand » but to push the idea that the problem is anything other than the preconditions that led up to this.
Chamath was spot on.
[1]: CNBC Chamath Palihapitiya Interview January 27th, 2021
"Retail trading" is not even remotely close to "the entire financial system." And it's that kind of casual but enormous misunderstanding that leads to casual, ignorant participation I. retail trading itself.
I need to watch your videos and learn more, but to continue your train of thought:
If the clearinghouses didn't put these requirements on RH, or ask brokers to stop buying of these shares, I assume they themselves are at risk of going under? (As you said, who's supposed to front those 5000% returns?) If that happens, would it not lead to a cascading failure of both clearinghouses and brokers going under? The end result being a major market crash?
The IB CEO seemed to be hinting at something like this on TV yesterday. It seems like there actually may be a lot at stake here, but I imagine that the clearinghouses and brokers will just shut it down again before any of that happens.
These means that the WSB narrative is sort of correct. It isn't direct collusion, but all these Wall St. firms are so reliant on each other that they'll always get each others back - if they don't they themselves are likely to go down.
EDIT: I just started watching the first video you linked and the CEO of WeBull is basically saying exactly what my comment does, so I guess I should've just watched that first.
Just to be clear, there aren’t multiple clearinghouses for US equities. There’s one, the DTCC. They handle effectively all of the US equities trades’s settlement cycle. If there’s any kind of doubt that they don’t have enough collateral and they need to take losses, it could cause a lot of chaos. Initiating the kind of “stop all trading” you refer to, is a lot more complicated than it sounds. You would get a sort of a stock market equivalent of a bank run.
On the flip side, (1) they’re known to ask people to post more money than necessary, because they like to err on the side of caution, and (2) if they ask you for money, you just post it, or you risk being kicked off from trading US equities for a long time.
RH limited 13-14 tickers, while most other brokers limited 0-2. Now, they probably had more comparative exposure to them but also the volatility and price changed massively due to their move.
More importantly they didn't communicate any of this in advance - they must've known this was coming yet suddenly stopped all buying and auto-sold everything on margin. It's hard to believe they couldn't have e.g. halted just margin trades a day before, given a warning etc. Instead they pretended everything was fine up until it blew up, and then as their first explanation claimed they are doing it to protect investors. It was only after a lot of outrage and filled lawsuits that they hinted at the real issue. So yes, they could've played this a lot better.
They still shit the bed as a brokerage, which is premised on providing individuals the ability to buy and sell stocks.
Not being able to meet the terms of a lending agreement is likely a legitimate reason for altering the services available to their customers, but it is also a massive failure.
>Isn’t RH just trying to play within the realities of the current system?
If RH had been upfront about it to begin with I think most would understand. The Webull CEO made similar interviews, and explained why they stopped trading; if the RH CEO had done similarly I wouldn't be so suspicious.
I don't understand why they couldn't just disable margin trading instead of buying the individual stocks. Margin trading was the real problem for them.
So, every broker is on margin with DDTC, they don’t have to have 100pct cash for the dollar amount of the buy orders they send to DDTC, as long as they will have the cash in 2 day. Some brokers like fidelity have hoards of 401k money and more likely to have 100pct cash for their orders. Trading brokers like IBKR RH keeps the minimum possible amount of cash with DDTC, and their automated systems adjusted up the minimum.
This is more or less like the futures market, except futures trades settle at end of day (when CME closes for an hour at 5pm, and next day starts at 6pm lol) and DDTC is the equivalent of CME
Who’s irresponsible here? DDTC for their lax cash requirements? Individual brokers that only keeps the minimum required cash? Futures cash requires 10pct or less, but no futures trader would only keep that much in their account, unless they don’t mind being wiped out and liquidated at end of day settlement (and then deposit more money the next day to trade again). Brokers cannot risk being wiped out at all.
It's not clear to me that anyone is irresponsible here. Let's say that everyone on reddit got together and decided to turn every single appliance in the house onto full at exactly 5am. The electricity grid wouldn't be able to spin up capacity fast enough and would have to shed load, causing black outs everywhere. Do we say the energy company is irresponsible for not having enough capacity on hand at all times to handle an immediate spike to 100% usage? No, that would be ridiculous and insanely expensive. In the same way there are reams of regulations around the minimum requirements and the risks associated with these events.
It's not even clear that continuing to allow low margin on these high volatility stsocks would've been good for consumers. The price would've got driven up further, the shorts would go bankrupt, the companies that loaned the shorts the stocks would recover pennies on the dollar, likely forcing them to sell off their position in GME to cover the losses driving the price through the floor, at which point all those RH traders who don't have quick accecss to the market would be left holding worthless stock, wiping out both their initial investment and probably getting margin called.
So, every broker is on margin with DDTC, they don’t have to have 100pct cash for the dollar amount of the buy orders they send to DDTC, as long as they will have the cash in 2 day.
I'm assuming you mean the DTCC? This actually isn't true now, as the DTCC have reportedly upped their margin requirements for GME orders to *100%*. That's according to the CEO of WeBull. That's why these clearing houses, and by extension brokers, cannot afford to sell GME stock to retail traders.
I wonder if Robinhood is preparing for the possibility that its margin book gets blown up when GME inevitably crashes. Crashing price creates cascading margin calls and they can't liquidate their customers' positions fast enough and end up having to cover their losses, rendering them insolvent.
Sequoia, thinking that the fundamentals of the company are still solid long term and that they can wash their hands of this in an IPO in the near future, extends them a lifeline at absolutely brutal terms.
Is it just me or is the involvement of VCs here really strange? If Robinhood was anything like a traditional broker (or bank/broker combination) Venture Capital firms would not have been anywhere on the list of places to get emergency money.
Although I'm glad that RH has driven the price of trading down for everyone, this is one more reason why most people should keep their money with a more boring financial institution.
Most "real" brokerages can get access to billions if not trillions of cash for overnight/three days for settlement purposes.
They say WallStreetBets is "4chan found a bloomberg terminal" - Robinhood is Silicon Valley masquerading as a real broker; perhaps even the Juicero thereof.
I only have a small amount of play money there, and I continue to draw it down. TD Ameritrade and Vanguard serve as my real brokers.
Side note: I kinda wonder what Bogle would have to say about all this if he were still alive; probably would have killed him.
My first reaction to any news from a large company that people question the legality of is "I'm sure they have a team of highly qualified lawyers who signed off on this plan."
But then I remembered about the RH checking account that clearly wasn't approved...
Prediction: Robinhood loses class action and is bought by Schwab for pennies after founders plea bargain for 3 months prison and $20M in fine each and disappear into the ether like Adam Neumann.
I would actually love if some actually reputable brokerage bought Robinhood and just offered it as an (optional) interface to their current trading platform. It's no doubt that part of Robinhood's success is that the UI is much better than a lot of current trading platforms.
One interesting thing that happened today as I was selling my AMC stock/options is that they executed lightning quick. Normally Robinhood (especially this morning) takes time to sell these options, yet they were immediately picked up.
Would be crazy to think short sellers were buying up all the sell side stocks/options while retail were panic selling, to hedge against their shorts.
This feels so likely when only retail investors were banned from buying. Who exactly is buying up all these shares then? Fingers only seem to point in one direction.
Readit News
Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line.
I watched the CEO on CNN tonight, and while I found him pretty difficult to watch, this is a very difficult position to be in. If you admit on TV that your company is experiencing liquidity issues -- even if temporary in nature such as with clearing custodianship requirements -- you run the risk of triggering a greater panic through customer withdrawals/redemptions.
This could turn into a run on the brokerage pretty quickly, and probably already has in some measure, especially after a day of massively lost customer trust. He certainly didn't help it by going on TV and lying about their liquidity issues. They probably would've been better off by issuing a statement and keeping him off TV.
Perhaps you can help me understand something.
In the absence of margin trading, if I deposit $100 of cash at my brokerage, then I order my broker to buy $100 worth of Stock A, how does credit and the possibility of bankruptcy enter into the transaction at all?
After all, if I give my kid $5 and send him to the store to buy some milk, he doesn't need to find 'liquidity' or a 'credit line' or risk bankruptcy.
You cannot use customer funds to cover dtcc collateral terms.
Your milk example does not work, because you are not settling up the milk buy 2 days after. You settle your milk purchase on the spot.
The Instant means any security sold you can immediately use that cash.
Normally you can't go that. You have to wait 3 days for it to settle in the clearing House. The Instant accounts are using margin to make the cash instantly available.
So in Robinhood's case if there are many people depositing dollars to buy stock then that could be their reason or excuse to not have funds available for trading. Just a guess.
I know for a fact my bank lies. They've been fined hundreds of millions of dollars for money laundering (it's HSBC). A few years ago I looked in to moving to a more honest bank, but I couldn't find one that also met basic criteria like having access to cash points in the UK and having a half decent mobile banking app. Literally every major bank that operates in the UK has stories of doing frankly awful things.
Since then I've joined Monzo, who do seem to be genuinely above board, but finding an honest financial institution is really hard.
Last year you saw both that banks were 'forced' to withhold dividends and they were perfectly capitalised. Both cant be true of course.
If they hide it from you your money and everyones money is safe. If they tell the truth everyone loses, so it is actually the best outcome for you and everyone else. The fractional reserve system relies on not everyone withdrawing their money at once.
So you're keeping cash under the mattress then i assume?
It's turtles all the way down. You could say trust emerges when people agree to believe in a shared lie.
Robinhood has proven its intentions by its actions all the other things they say is just marketing and PR bullshit
I already know when it comes to volatility, they are going to choose IBKR over my account which is good because usually "my account" is fine but its the others who are doing really crazy things.
I know IBKR will be around in the morning. That's why I love them.
I suspect they lost you as a customer either way.
Never ever use a broker where you can't pick up the phone and talk to a real human being. They all have zero commissions now so there's no excuse.
A real brokerage should, in my opinion, and some sort of duty to act in the best interest of its clients.
A brokerage should not have huge backlash because its users got margin called, and those users didn't even know what a margin call was.
They should not have huge backlash because its users stop-loss orders were triggered, and then executed at a lower price.
This is just confusion that shouldn't exist, because a reasonable brokerage shouldn't be luring people into these risky positions just to make a buck on the sale.
But, if you're a buy and hold investor, it shouldn't be an issue.
Aren't there laws against lying to investors?
And why exactly did they have to let people sell GME shares? In light of the current situation, it sounds to me like the responsible and impartial thing would have been for them to temporarily suspend all trading of GME - not just buying.
The trade-off was suspending trading on some stocks vs suspending trading on everything when they hit their limit.
A Bankrun!
This is not (and is not expected to be) true of stock brokerage. Nobody generally has an expectation of moment-to-moment liquidity (or even closure of deals), even in a stock with significant availability. However, a brokerage deciding independently "You're not allowed to buy this one stock" is unusual, and can cause people to start backing towards the exits.
Also it will only attempt to return the securities you 'lost' not their cash value. If you lose a lot of money due to not being able to sell your stocks for several days, that is not covered. So if you held 2000 stocks of GME, the SIPC will (eventually) give you back 2000 stocks of GME, not the cash value of those stocks when Robinhood went bankrupt.
My guess it that the customers are wrong most of the time.
Deleted Comment
They lost my trust yesterday.
Dead Comment
This is no excuse for screwing retail investors. Horrible management. I mean, I am some random dude who can think of these, these are professionals running multi billion dollar enterprises, c'mon.
Not denying that all securities have risks, but that was a bad response imo.
https://twitter.com/ChrisCuomo/status/1354994000294522881
In the entire interview there's no real answer to any question.
You know, I've been on many job interviews this past year, and when that happens, I immediately know not to go further with that person (and if it persists, the company).
I just finished watching a video from Louis Rossmann [1] as well as one from Bruce Fenton [2]. In his video, Rossmann covers the technicalities and systems behind actually __making__ a trade with an app like RH. The videos were very informative and I learned quite a lot.
With the exception of his recent interviews, it isn’t exactly clear what Robinhood was supposed to do differently. If my understanding is correct, clearing houses required more money up front to perform trades - RH didn’t have it so they stopped the trades unidirectionally. People got upset that they couldn’t buy but could sell which made it seem like RH wanted to manipulate the price - but isn’t it better than the alternative, the inability to both sell and buy would seem to me worse than what was done. Imagine them closing both and preventing people from selling if a crash occurs. The discussion would simply be « Robinhood stole our gains and wouldn’t let us move our funds ».
Now, should it be the case that more money is required up front, intuitively it makes sense, I mean, who is supposed to front the bill on those 5000% returns? The hedge fund that just went bankrupt? Where exactly does this money come from?
Isn’t RH just trying to play within the realities of the current system?
Genuinely curious.
[1]: https://m.youtube.com/watch?v=MAqxQe0l4g0&feature=youtu.be
[2]: https://m.youtube.com/watch?v=RQTC5f_VR9I&feature=youtu.be
Robinhood tanked their credibility by letting the mask slip and people are on that like hyenas because of the irony. Really though, the focus on them is a distraction from the much larger slip by the entire financial system.
what a world where a free platform takes an action to stay solvent and in business and its a bullshit claim that theyre helping their customers. i guess they shouldve done the more helpful thing and gone bankrupt, illegally allowing trades they cant cover.
Exactly. I also watched the recent CNBC interview with Chamath Palihapitiya [1]. I would like to it, but CNBC keeps taking it down.
In any case, the host really doesn’t seem like he’s there to « get to the bottom of things or to understand » but to push the idea that the problem is anything other than the preconditions that led up to this.
Chamath was spot on.
[1]: CNBC Chamath Palihapitiya Interview January 27th, 2021
If the clearinghouses didn't put these requirements on RH, or ask brokers to stop buying of these shares, I assume they themselves are at risk of going under? (As you said, who's supposed to front those 5000% returns?) If that happens, would it not lead to a cascading failure of both clearinghouses and brokers going under? The end result being a major market crash?
The IB CEO seemed to be hinting at something like this on TV yesterday. It seems like there actually may be a lot at stake here, but I imagine that the clearinghouses and brokers will just shut it down again before any of that happens.
These means that the WSB narrative is sort of correct. It isn't direct collusion, but all these Wall St. firms are so reliant on each other that they'll always get each others back - if they don't they themselves are likely to go down.
EDIT: I just started watching the first video you linked and the CEO of WeBull is basically saying exactly what my comment does, so I guess I should've just watched that first.
On the flip side, (1) they’re known to ask people to post more money than necessary, because they like to err on the side of caution, and (2) if they ask you for money, you just post it, or you risk being kicked off from trading US equities for a long time.
Deleted Comment
More importantly they didn't communicate any of this in advance - they must've known this was coming yet suddenly stopped all buying and auto-sold everything on margin. It's hard to believe they couldn't have e.g. halted just margin trades a day before, given a warning etc. Instead they pretended everything was fine up until it blew up, and then as their first explanation claimed they are doing it to protect investors. It was only after a lot of outrage and filled lawsuits that they hinted at the real issue. So yes, they could've played this a lot better.
Not being able to meet the terms of a lending agreement is likely a legitimate reason for altering the services available to their customers, but it is also a massive failure.
If RH had been upfront about it to begin with I think most would understand. The Webull CEO made similar interviews, and explained why they stopped trading; if the RH CEO had done similarly I wouldn't be so suspicious.
This is more or less like the futures market, except futures trades settle at end of day (when CME closes for an hour at 5pm, and next day starts at 6pm lol) and DDTC is the equivalent of CME
Who’s irresponsible here? DDTC for their lax cash requirements? Individual brokers that only keeps the minimum required cash? Futures cash requires 10pct or less, but no futures trader would only keep that much in their account, unless they don’t mind being wiped out and liquidated at end of day settlement (and then deposit more money the next day to trade again). Brokers cannot risk being wiped out at all.
It's not even clear that continuing to allow low margin on these high volatility stsocks would've been good for consumers. The price would've got driven up further, the shorts would go bankrupt, the companies that loaned the shorts the stocks would recover pennies on the dollar, likely forcing them to sell off their position in GME to cover the losses driving the price through the floor, at which point all those RH traders who don't have quick accecss to the market would be left holding worthless stock, wiping out both their initial investment and probably getting margin called.
Deleted Comment
Edit: Nope, looks like Robinhood "Instant" is now the default, margin account, but still limited to $1000 per account:
https://robinhood.com/us/en/support/articles/robinhood-accou...
I'm assuming you mean the DTCC? This actually isn't true now, as the DTCC have reportedly upped their margin requirements for GME orders to *100%*. That's according to the CEO of WeBull. That's why these clearing houses, and by extension brokers, cannot afford to sell GME stock to retail traders.
Sequoia, thinking that the fundamentals of the company are still solid long term and that they can wash their hands of this in an IPO in the near future, extends them a lifeline at absolutely brutal terms.
It was part of what caused the drop in combination with the no buying.
https://learn.robinhood.com/articles/4UWpxUy5G0KNDSbcMRs6WE/...
Although I'm glad that RH has driven the price of trading down for everyone, this is one more reason why most people should keep their money with a more boring financial institution.
Reminds me of when RH launched a "checking" account and claimed it had deposit insurance and then in about one day regulators said "absolutely no it does not": https://www.forbes.com/sites/ronshevlin/2019/01/02/the-robin...
They say WallStreetBets is "4chan found a bloomberg terminal" - Robinhood is Silicon Valley masquerading as a real broker; perhaps even the Juicero thereof.
I only have a small amount of play money there, and I continue to draw it down. TD Ameritrade and Vanguard serve as my real brokers.
Side note: I kinda wonder what Bogle would have to say about all this if he were still alive; probably would have killed him.
The next best thing is Warren Buffett, has he said anything on this?
But then I remembered about the RH checking account that clearly wasn't approved...
Would be crazy to think short sellers were buying up all the sell side stocks/options while retail were panic selling, to hedge against their shorts.