[HN Gopher] Robinhood Hit with Class Action Lawsuit After Haltin...
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Robinhood Hit with Class Action Lawsuit After Halting GameStop
Stock
Author : reddotX
Score : 393 points
Date : 2021-01-28 20:35 UTC (2 hours ago)
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| trevortheblack wrote:
| Propose shifting the article to the suit itself:
|
| https://www.courtlistener.com/recap/gov.uscourts.nysd.553175...
| hehehaha wrote:
| 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.
| konjin wrote:
| > Net effect is likely higher cost of trading for everyone.
|
| Good, trades are not zero cost and should not be treated as
| such.
| liuliu wrote:
| 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.
| artorg wrote:
| I think the suitability standard applies here, and will probably
| be the main defense for the brokers.
|
| https://www.investopedia.com/articles/professionaleducation/...
|
| https://www.finra.org/rules-guidance/key-topics/suitability
| cccc4all wrote:
| 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?
| ghego1 wrote:
| 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.
| throwaway69123 wrote:
| Is it true the company that owns Robinhood also has a huge short
| exposure to GME?
| tqkxzugoaupvwqr wrote:
| 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.
| ivalm wrote:
| 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.
| tmslnz wrote:
| 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!
| ww520 wrote:
| They claimed they have exited "a" short position. We don't
| know how many short positions they will have besides that
| one.
| cwwc wrote:
| But citadel subsequently took a new short position
| ivalm wrote:
| Citadel securities is an MM in this business, they are
| certainly delta neutral and not short.
| llampx wrote:
| There's Citadel the market maker and Citadel the hedge
| fund.
| ivalm wrote:
| 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.
| Nacdor wrote:
| That's what Melvin Capital claimed through a PR person, but
| that's not what anyone actually believes.
| cccc4all wrote:
| There's no proof of this. Look at actual stats, GME is
| STILL shorted over 100%.
| ivalm wrote:
| 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.
| briankelly wrote:
| 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.
| thereare5lights wrote:
| We have no proof of that
| timack wrote:
| Melvin capital [claimed to have] exited the short position
| two days ago, the loss is realized.
| ivalm wrote:
| 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.
| dasudasu wrote:
| No proof of that. Pure speculation. It's also in their
| interest to spread such rumors.
| [deleted]
| moufestaphio wrote:
| * they claim they did
| xiphias2 wrote:
| We can't know that for sure, as it wasn't an official
| announcement.
| ivalm wrote:
| 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.
| paxys wrote:
| 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.
| markdown wrote:
| > Citadel (the fund) and Citadel Securities are both owned by
| Citadel LLC, but supposedly operate completely independently
| with no collusion.
|
| ROFL
| alexdumitru wrote:
| They don't own it, but they're their largest customer.
| luxuryballs wrote:
| Ain't that some shit.
| leroy_masochist wrote:
| 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.
| sudosysgen wrote:
| Retail investors aren't really the customers, unless they
| borrow margin really they're the product.
| findthewords wrote:
| In other words, Citadel is a customer of RH while the app's
| user data is the product.
| xiphias2 wrote:
| 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.
| thekyle wrote:
| Seems similar to the users vs. customers (advertisers)
| situation that most websites have.
| ubiquitysc wrote:
| I'm not sure why that's getting passed around. Citadel does not
| own Robinhood. They perform trades for Robinhood though.
| hntrader wrote:
| What about all the other retail brokerages that did the same
| thing?
| FireBeyond wrote:
| Presumably their customers are free to sue them.
| hntrader wrote:
| 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.
| Macha wrote:
| 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.
| po1nter wrote:
| Active discussion here
| https://news.ycombinator.com/item?id=25947814
| franklampard wrote:
| well deserved
| nindalf wrote:
| Mate you deserved more time. I'll always be a fan!
| airstrike wrote:
| Never thought I'd see him around these parts
| eric_b wrote:
| 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.
| ALittleLight wrote:
| 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.
| RivieraKid wrote:
| I think I'm the only guy on the internet who's rooting for the
| short-sellers.
| Nacdor wrote:
| How will this lawsuit get around the binding arbitration clause
| in their customer agreement?
|
| https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...
| TimPC wrote:
| 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.
| lr1970 wrote:
| 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.
| en4bz wrote:
| If they go through arbitration they'll end up like DoorDash
| [1].
|
| [1]
| https://www.latimes.com/business/story/2020-02-11/doordash-a...
| Nacdor wrote:
| 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.
| jonwachob91 wrote:
| 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...
| findthewords wrote:
| I would imagine that this lawsuit is about the motive behind
| it.
| mattnewton wrote:
| 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.
| jcranmer wrote:
| The class is all Robinhood customers, or alternatively, all
| Robinhood customers who tried to buy GME but couldn't.
| abduhl wrote:
| 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?
| Nacdor wrote:
| 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.
| paulpan wrote:
| 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.
| zionic wrote:
| At this point I would expect RH to let you buy, but not sell,
| RH's own IPO stock hah.
| 6nf wrote:
| Yes this is very bad for RH
| hankchinaski wrote:
| this increasingly looks like an episode of "billions"
| MrPatan wrote:
| 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?
| Thaxll wrote:
| 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.
| tqi wrote:
| 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...
| freeone3000 wrote:
| 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.
| tqi wrote:
| 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.
| hutzlibu wrote:
| 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?
| p1mrx wrote:
| > "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.
| paulpauper wrote:
| It is already going up a lot in AH. It will be hard 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 father weakens the narrative ad
| causality that Robinhood's action's caused robothood customers to
| lose money. The stock tanks maybe because it was just simply
| overbought, regardless of Robinhood doing anything.
| hnrodey wrote:
| 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".
| bernardv wrote:
| Oh please... own your risk
| [deleted]
| RangerScience wrote:
| Yeah, kinda tired of freeloading financial institutions
| crying foul when their risk realizes.
|
| /snark
|
| Wait.
| [deleted]
| IG_Semmelweiss wrote:
| 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...
| silexia wrote:
| Even outside of the trade clearing argument (even if
| Robinhood clears it's own trades, it could still lose huge
| sums if the stock gapped), a short squeeze is illegal.
| Allowing it's platform to be used for illegal activity could
| make them liable to the SEC and investor lawsuits.
| zionic wrote:
| > a short squeeze is illegal
|
| No it's not
| llampx wrote:
| Short squeezes are not illegal, stop spreading
| misinformation.
| Noted wrote:
| You keep posting this, but do you have any evidence? Other
| people have repeatedly refuted short squeezes being
| illegal.
| girvo wrote:
| You keep posting this in every possible thread.
|
| Question: who got punished for the VW short squeeze? That
| was illegal too, right?
|
| The thing is, I think I know what you're trying to say, but
| you're not explaining it well enough, and are spreading (at
| best) misinformation.
|
| A short squeeze isn't illegal.
|
| Organising a coordinated one _might_ be.
| rohitb91 wrote:
| 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.
| cmdli wrote:
| 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.
| Triv888 wrote:
| 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)
| [deleted]
| nindalf wrote:
| 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.
| EGreg wrote:
| The real owners of the markets have showed up:
|
| https://news.ycombinator.com/item?id=25950306
| nine_zeros wrote:
| > 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.
| ThisIsTheWay wrote:
| 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.
| Clubber wrote:
| 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.
| homeless_engi wrote:
| If you count cards, the pit boss will ask you to leave.
|
| Personally, not a fan of the casino metaphor.
| ThisIsTheWay wrote:
| +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.
| ThisIsTheWay wrote:
| 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.
| [deleted]
| dheera wrote:
| 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.
| Andrew_nenakhov wrote:
| Casinos are OK. Gambling is a special tax applied to people
| with bad understanding of the probability theory.
| thatguy0900 wrote:
| 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.
| pc86 wrote:
| 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.
| thatguy0900 wrote:
| 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.
| throwaway2245 wrote:
| 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.
| linuxftw wrote:
| 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.'
| hi5eyes wrote:
| 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
| xwdv wrote:
| 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.
| drcross wrote:
| Crypto _enters the chat_
| nine_zeros wrote:
| This. Alternatives exist and will be created as faith in
| America keeps falling. The world hasn't run out of smart
| people.
| robntheh00d wrote:
| 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.
| trhway wrote:
| >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 will 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).
| CamelCaseName wrote:
| With Gary Ginsler at the SEC, who knows?
| silexia wrote:
| 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.
| nawgz wrote:
| 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.
| u10 wrote:
| They absolutely are not illegal.
|
| Shorts got greedy and got caught out. Should short sellers
| not have any downside to their trades?
| silexia wrote:
| https://www.sec.gov/investor/pubs/regsho.htm. Control
| plus F "short squeeze". Intentional short squeezes like
| what is happening in GME is illegal.
| alex_c wrote:
| 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?
| xmodem wrote:
| 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.
| Tokelin wrote:
| Intentional would be the key word. Would it be easy to
| prove it was intentional?
| simias wrote:
| 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.
| stransky wrote:
| The article doesn't explain why it's illegal.
| cortesoft wrote:
| 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.
| silexia wrote:
| 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.
| monadic3 wrote:
| That's surely not in Robinhood's interest to actively
| regulate this. How can they determine intent at point of
| purchase?
| AlexCoventry wrote:
| What statutes establish the criteria for manipulation?
|
| I heard (from a non-authoritative source) that the
| coordination on reddit, etc. is not manipulation.
| EEMac wrote:
| 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.
| krastanov wrote:
| 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.
| silexia wrote:
| https://www.sec.gov/investor/pubs/regsho.htm. Control
| plus F "short squeeze". Intentional short squeezes like
| what is happening in GME is illegal.
| krastanov wrote:
| > 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".
| ww520 wrote:
| Short squeeze is legal. What are you talking about?
| hoka-one-one wrote:
| I don't understand how you could possibly be angry when you
| didn't even take the time to read the ToS.
| OminousWeapons wrote:
| 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.
| gspr wrote:
| Do you read the ToS for every service that you use?
| avereveard wrote:
| false equivalency, not all services are of equals
| importance.
| matkoniecz wrote:
| And reread it every time it was changed?
| freeflight wrote:
| Equating speculative stock trading with opening a Facebook
| account is a very weird thing to do.
| FabHK wrote:
| 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.
| wbsun wrote:
| 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?
| vkou wrote:
| So, my non-lawyer, worked-in-finance-software 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.
|
| 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.
|
| 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 people repeat it
| with a straight face.
|
| ... Also, I would like to point out that there is nothing
| wrong with shorting a stock to 100%.
| hirundo wrote:
| 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.
| FabHK wrote:
| > 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.
| dillondoyle wrote:
| 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?
| Phlarp wrote:
| Where are all the HFTs looking to take a rake for "creating
| market liquidity"
|
| Sure looks like a rigged game to me.
| kosh2 wrote:
| Can you explain why buying GME was more costly for them? I
| don't undestand that.
| whoisninja wrote:
| 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
| JumpCrisscross wrote:
| > _if hedge funds were long, it would have happened?_
|
| Yes. DTCC changes collateral requirements on securities all
| the time. The collateral requirements they put on GME
| aren't even that egregious. Robinhood just didn't want to
| pay up.
| FabHK wrote:
| Mate, you can't just walk in here with detailed knowledge
| and settlement mechanics and all. It's a revolution
| against the conspiracy! </s>
| zaroth wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
|
| [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.
| SilasX wrote:
| >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?
| JumpCrisscross wrote:
| > _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.
| cde-v wrote:
| Sounds exactly like JP Morgan and Goldman Sachs.
| mywittyname wrote:
| 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.
| JumpCrisscross wrote:
| > _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. I don't think it
| is now. If Citadel failed tomorrow, it would make
| headlines for a week, and then we'd move on.
| thedudeabides5 wrote:
| 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
|
| https://en.wikipedia.org/wiki/When_Genius_Failed
| mrh0057 wrote:
| 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.
| this_user wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| this_user wrote:
| 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.
| cactus2093 wrote:
| 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.
|
| 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, that's
| what the legal system is there for.
| mynameisvlad wrote:
| 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.
| zaroth wrote:
| 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.
| this_user wrote:
| 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.
| WitCanStain wrote:
| That seems excessive. Not to mention unrealistic - how do
| you prove that any single person engaged in a crime?
| kosh2 wrote:
| 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.
| jcranmer wrote:
| 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."
| avereveard wrote:
| found the "should just build their own exchange with their
| rules!" comment
| MaxBarraclough wrote:
| > Any broker is free to decide what the let their customers
| trade.
|
| This exact point turned up 4 hours ago in another thread:
|
| https://news.ycombinator.com/item?id=25946004
| boh wrote:
| 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.
| tlholaday wrote:
| Do you have an example of a broker halting purchases, but not
| sales, for customers who have the cash?
| jonwachob91 wrote:
| 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.
| zionic wrote:
| "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"
| boh wrote:
| 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.
| Tokelin wrote:
| How is halting trades the same as only halting buys? By
| halting trades it is implied selling is also halted.
| shawabawa3 wrote:
| 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
| danhak wrote:
| 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.
| shuckles wrote:
| Didn't IBKR do the same, among others?
| boh wrote:
| 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.
| goatinaboat wrote:
| _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.
| dalbasal wrote:
| >> 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.
| Traster wrote:
| 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.
| splistud wrote:
| Yes it is very similar in that you seem to have no idea what
| you are saying about either issue
| Traster wrote:
| 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.
| Phlarp wrote:
| 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.
| Traster wrote:
| 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.
| satellite2 wrote:
| 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.
| sbelskie wrote:
| "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.
| kart23 wrote:
| suggest you use a non-amp link:
|
| https://finance.yahoo.com/video/heres-why-robinhood-restrict...
| sbelskie wrote:
| Done. Thanks!
| [deleted]
| carstenhag wrote:
| And these businesses have contracts specifying that they can
| increase prices absurdly high from one day to the other?
| JumpCrisscross wrote:
| > _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_Cleari
| ng_...
|
| [2] https://www.dtcclearning.com/products-and-
| services/settlemen...
| u10 wrote:
| 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.
| dillondoyle wrote:
| 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?
| FireBeyond wrote:
| > 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.
| u10 wrote:
| 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.
| FabHK wrote:
| 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.
| jimbob45 wrote:
| He lied. They're forcing retail investors to sell their
| positions.
| hanselot wrote:
| https://i.4cdn.org/pol/1611872244745.jpg
| mortehu wrote:
| Brokers must often sell customers' positions if they have
| insufficient margin. Where did he say they wouldn't?
| youeseh wrote:
| > 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.
| 0xEFF wrote:
| 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.
| smsm42 wrote:
| Ok so let me understand. You can sell you position no
| problem. So who's going to buy it, if buying is not allowed?
| einrealist wrote:
| 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.
| youeseh wrote:
| Yes, the factors are governed by how they make money.
|
| If one is not the customer, then they are the product!
| 6nf wrote:
| I thought RH used Citadel
| sangnoir wrote:
| To my knowledge, RH _sells_ its users ' order flow to
| Citadel (which is how they make money).
| andylei wrote:
| clearing is totally separate from flow
| einrealist wrote:
| They write about it in their FAQs:
| https://robinhood.com/us/en/support/articles/whats-
| clearing-...
| cure wrote:
| 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.
| sbelskie wrote:
| 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.
| silexia wrote:
| 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.
| andrewgioia wrote:
| You keep saying this here but AFAIK they are not illegal.
| What are you basing this on?
| silexia wrote:
| The SEC published guidance here
| https://www.sec.gov/investor/pubs/regsho.htm
| andrewgioia wrote:
| 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.
| NOGDP wrote:
| > Short squeezes are illegal.
|
| Nope.
| silexia wrote:
| "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.
| ALittleLight wrote:
| 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.
| silexia wrote:
| https://www.sec.gov/investor/pubs/regsho.htm
| ALittleLight wrote:
| 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."
| Catsandkites wrote:
| Can you point to the legislation that indicates this?
| (Curiosity)
| MrPatan wrote:
| > 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.
| smsm42 wrote:
| 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?
| Hnsuz wrote:
| When do people get it.. These companies are scammers only?
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