[HN Gopher] Analysis: Robinhood protected from lawsuits by user ...
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Analysis: Robinhood protected from lawsuits by user agreement,
Congress
Author : 1cvmask
Score : 162 points
Date : 2021-01-30 17:45 UTC (5 hours ago)
(HTM) web link (www.reuters.com)
(TXT) w3m dump (www.reuters.com)
| abotsis wrote:
| Why? Surely them blocking buys for any individual (or even small
| group of them) is within their rights per their customer
| agreement. But blocking them en masse is market manipulation, and
| their tos isn't going to protect them from that.
| austhrow743 wrote:
| Market manipulation requires intent to artificially change the
| stock price. It isn't everything that changes the stock price
| otherwise any large organisation or person with clout would be
| constantly market manipulating all day long.
| peterthehacker wrote:
| The argument that Reddit/WSB users manipulated the market is
| a more difficult one to make vs. the argument that RH
| manipulated the market when they restricted their users to
| only sell GME. If they stopped both buying and selling then
| GME would not have dropped the way it did.
|
| RH CEO's denial said they made the move to protect the firm
| and their customers, but blocking buying and selling would've
| given them the protections without the risk of causing a
| change in the price. So it's hard to believe that RH's intent
| was anything but pushing the price of GME down to cover their
| customer's short position.
| austhrow743 wrote:
| That reddit/wsb didn't market manipulate is in no way an
| argument for robin hood having market manipulated.
|
| Again, it's fine to do things that cause stock prices to
| move. That robin hood could have reduced their
| functionality further in order to affect the stock price
| less is not relevant. If they have some duty to go out of
| their way to minimise their impact on stock prices, its
| above and beyond regular market manipulation.
| abotsis wrote:
| So when they reopened limited trading and prevented
| people who already had positions from acquiring more, how
| did that help their case that it was done because of
| their obligations to their clearing house? If they said
| "ok, everyone can purchase 5 additional shares" it'd be
| one thing. But they said "nobody can acquire to own more
| than 5 shares". Some of those shares people owned were
| already settled....
| 542458 wrote:
| My understanding is just because something meets the layman
| definition of, say, "market manipulation" doesn't mean it meets
| the legal definition of that. This also applies to things like
| recklessness - the legal definition and the layman definition
| are different.
|
| Furthermore, AFAIK it's not that something like "market
| manipulation" is illegal - it's usually more complex than that,
| and might only be illegal under circumstances XYZ.
|
| It's tempting to read laws as if they're written in plain
| English, but it's really more like a specialized dialect where
| words and phrases have different (and often complex) meanings.
| Cambro320 wrote:
| SEC regulations will override any user agreement where Robinhood
| is required to provide fair trade execution services
| alacombe wrote:
| There is obviously no political will to go after them.
| dmw_ng wrote:
| These complaints need to reframed in terms of the sellers of the
| extremely underpriced call options that triggered the insane
| volatility in the first place. There are only a tiny number of
| companies responsible, possibly as few as one
|
| Robin hood users certainly weren't clicking around a UI buying
| stocks fast enough to cause the incredible moves witnessed, that
| could only be the action of the option market makers attempting
| to hedge options they'd sold to those users with a notional value
| vastly exceeding available liquidity
| awillen wrote:
| Why can't non-Robinhood holders of GME sue Robinhood, though? If
| you can prove that RH's actions drove the stock down, then aren't
| they the victims (and also not bound by the user agreement)?
| gruez wrote:
| >If you can prove that RH's actions drove the stock down
|
| That'd at best, prove harm, which is a necessary _but not
| sufficient_ condition for a successful lawsuit. You 'd also
| need to prove wrongdoing, which is hard because they seemed to
| have acted so they can fulfill their deposit requirements.
| awillen wrote:
| Assuming that's true - the big issue is that Vlad said very
| clearly that they did not have a liquidity problem. You can't
| say that you're restricting deposits because the
| clearinghouses require you to put up more cash then
| immediately follow that by saying you have plenty of cash.
| nceqs3 wrote:
| Everything is securities fraud - Matt Levine
| alacombe wrote:
| > Everything is securities fraud, _as long as there is
| political will to prosecute_
|
| FTFY
| jedberg wrote:
| I'm not sure why this article talks about reddit at all. I'm not
| aware of anyone suing reddit or even considering it (unless the
| hedge funds plan to do so?).
|
| It seems like they just wanted an excuse to write an article
| about Section 230, or had already written it when it was a big
| topic earlier in the month and wanted to use what they wrote
| elsewhere. :)
| dang wrote:
| Ok, we've deredditized (unreddited?) the title above. Good
| catch.
| [deleted]
| tempsy wrote:
| The fact that they've not only limited trading in GME but low
| volatility name like Starbucks to 1 share is ridiculous. If the
| only outcome out of this is collective realization about issues
| with Section 230 or forced arbitration that is a positive whether
| this class action becomes anything or not.
| hundreddaysoff wrote:
| A second collective realization I'd like to see is that the SEC
| is still using the same faulty Value-at-Risk model they were
| using before the 2008 crash to estimate clearing funds. They
| should probably not use this model to do this any more.
|
| See https://www.sec.gov/rules/sro/nscc-an/2018/34-82631.pdf and
| explanation at
| https://twitter.com/MKM_Abdul/status/1355310540235579395
| lucasyvas wrote:
| Can anyone with Robinhood confirm what kind of agreement this is?
| Is it just a EULA? Obviously IANAL, but I cannot see how such
| agreements are legally binding if they don't even require a
| signature.
|
| In a theoretical world where I had to sign a EULA, I'd never sign
| any of them and I imagine most people wouldn't either.
| tzs wrote:
| If it were Robinhood suing users users over their terms or user
| agreement, then arguing that there is no contract might be a
| good defense.
|
| This is the other way around. It is the users suing Robinhood
| claiming that Robinhood violated the contract by not making the
| trades. If the users established that there is no contract,
| they would destroy the foundations of their own case.
| andrewflnr wrote:
| Who is trying to sue Reddit for this? Bringing them up just
| sounds like building a case for repealing Section 230 of the
| DMCA, which would be a disaster but nevertheless seems to have
| bipartisan support.
| lucasyvas wrote:
| I'm all for it at this point - it will push to decentralized
| infrastructure, which the Internet was meant to be in the first
| place.
| scsilver wrote:
| Decentralized infrastructure with equal access is the
| solution to avoiding legislation here, people should be able
| to access the public forum and markets and companies should
| have the right to not associate with individuals not
| protected by human rights laws. Technology can solve this,
| and we are seeing money being spent towards this
| decentralization flooding towards building it just in 2021
| alone. Interesting to see how a battery of solar houses +
| starlink + a drone port could allow decentralized communes to
| start popping up.
| andrewflnr wrote:
| I think this will not go the way you want it to. Powerful
| interests will certainly portray decentralized communication
| tools as refuges of terrorists and child predators. They may
| even succeed in passing legislation that targets them. It
| will be easier if they're riding high on the momentum of
| successfully "striking at bad actors, forcing them to flee to
| other platforms" by repealing 230. "All for it" is a good
| zinger, but a bad plan.
| mancerayder wrote:
| I have mixed feelings about this. On the one hand, I'm upset
| that centralized control led to big tech being able to so
| easily squash ideological competition (Parler and NY Post, and
| I am no ally of these, as well as stuff on the left and many
| individuals), and I want to see some sort of government whip-
| cracking. On the other hand, if they repeal 230 and everyone is
| afraid of lawsuits, then you'll see comments disappear
| everywhere, content disappear everywhere, freedom to publish
| diminish, and not platforms but content itself be centralized
| to that which is 'approved.'
| andrewflnr wrote:
| That doesn't actually sound mixed w.r.t section 230, more
| like a very clear statement that a different solution is
| needed.
| tengbretson wrote:
| I checked the Robinhood tos and it looks like they have a forced
| arbitration clause anyway. I'm not sure why the class action
| efforts thought they could get anywhere.
|
| That said, I'm pretty sure you could make Robinhood fold if the
| users all bombed them with arbitration filings.
| azinman2 wrote:
| They may be protected from lawsuits, but they won't be protected
| from the loss of users. I predict a sizable exodus of the
| platform.
| tommoor wrote:
| They were gaining _millions_ of new users a day this week. I'd
| highly doubt the number of people closing accounts will be
| greater than this.
| 9985479945_ wrote:
| This makes sense. Financial terrorism cannot be tolerated
| Daho0n wrote:
| But it is on wall street every weekday.
| relaunched wrote:
| Robinhood would be liable for any margin accounts that were
| unable to settle their balances by the end of the allotted term.
| It's very reasonable that they restricted trades based on their
| liability.
|
| Did it have the deleterious affect of negatively impacting anyone
| long on the stock, probably. But, was that the primary rationale?
| It'll have to come out in discovery.
| why_Mr_Anderson wrote:
| In Europe, mandatory arbitration are usually unlawful. _European
| Union Council Directive 93 /13 on Unfair Terms in Consumer
| Contracts creates a rebuttable presumption that pre-dispute
| arbitration clauses in consumer contracts are invalid. The reason
| is the unequal bargaining power between the contracting parties
| in consumer contracts._
| LatteLazy wrote:
| I don't necessarily support forced arbitration but... I would
| rather not pay the court fees because a bunch of people are
| upset their broker didn't accept their orders and want to waste
| the courts time over it.
| elliekelly wrote:
| I am cautiously optimistic that this issue (which seems to have
| drawn "outrage" from both sides of the political spectrum) will
| spur some change with respect to contracts of adhesion that force
| arbitration and prohibit class action suits. It's nearly
| impossible to hold a corporation accountable for wide-spread
| anticonsumer behavior in any meaningful way so long as they can
| tuck those two paragraphs into a massive contract most people
| don't read and even fewer will understand.
| caseysoftware wrote:
| On the arbitration front, check out the situation with
| IndieGoGo and now Patreon. A large number of people acting in
| concert can fight back against them without going to a class
| action lawsuit (which are banned anyway). A few years back, the
| MO for companies was to require arbitration, not participate,
| and then let it linger forever. California changed the law
| recently (2019?) where if the company doesn't respond, they
| "lose" according to JAMS rules.
|
| * I participated in the IndieGoGo arbitration process. Our fee
| was $250 while theirs was uncapped with most (public) estimates
| being in the $10-12k range. With a few hundred people, it
| starts turning into real money for them.
| andrewflnr wrote:
| > where if the company doesn't respond, they "lose"
|
| Ah, that sounds like something that should go nation-wide.
| kleton wrote:
| Robinhood's vulnerability is their forced arbitration clause in
| the ToS. Similar to Doordash:
| https://www.vox.com/2020/2/12/21133486/doordash-workers-10-m...
| jcranmer wrote:
| If I read Robinhood's ToS correctly, you agree to not arbitrate
| any claim you bring up in a class action lawsuit.
| Natsu wrote:
| Who is "you" here? The lead plaintiff is the only one taking
| it to court and everyone else has the option to opt out if
| they so desire.
| protomyth wrote:
| That's actually the problem. Each separate arbitration costs
| them a bunch of cash. If you run a startup in CA, you might
| want to look at this language because it could get you in
| trouble. A class action would probably be cheaper.
| tgsovlerkhgsel wrote:
| And if there is something their current user base is good
| at, it's coordinated mass action.
|
| So if this is possible, I expect _tens of thousands_ of
| arbitration cases to be filed by Monday.
| pfortuny wrote:
| This is not a "user-based" restriction (which I guess is what the
| law intended to mean) but a wholesale restriction without _per-
| customer_ reasoning, without notice and without equivalent
| counterpart (they did not block selling)... At least it is worth
| looking into.
| gutino wrote:
| You can not overwrite a law by making anybody signup user
| agreement. This was clearly a stock manipulation played in our
| faces, no need o prove anything. Only left is to see if the
| justice exist in EEUU.
| jerry80 wrote:
| Yes, and the manipulation doesn't only affect Robinhood
| customers.
| dancemethis wrote:
| This headline writing pattern is goshdarn atrocious.
| stevespang wrote:
| One strategy that 1st year law students are all aware of:
|
| ANY contract that is one sided, where ALL participants are not
| allowed to participate in negotiating the contract - - and
| especially without all sides being represented by an attorney - -
| are known as UNCONSCIONABLE, and prone to be set aside in court.
| (without good conscious, or predatory).
|
| All these High Tech TOS's meet that standard of UNCONSCIONABLE
| ericmay wrote:
| Robinhood won't go out of business because of lawsuits, it'll be
| an exodus of users.
|
| Even if they just weren't prepared and everything they did was
| legitimately the right thing to do, that ship has sailed. I know
| people I didn't even know had a Robinhood account ask me if I was
| shutting my account down too.
|
| This will be fascinating to watch. Can the repair the brand
| damage? I'm skeptical.
|
| Is there any similar scenario that has occurred at another
| brokerage firm in the past that might leave clues to examine to
| understand potential user actions here?
| kleton wrote:
| Each FINRA arbitration case would be expected to cost the
| company up to 10,000 in fees. If anywhere near the 100,000
| users who left negative reviews on the Google Play store for
| the app file an arbitration and pay the filing fee, Robinhood
| will absolutely go bankrupt.
|
| If you are/were a Robinhood user:
| https://www.finra.org/arbitration-mediation/initiate-arbitra...
| btown wrote:
| For what it's worth, arbitration filing fees can be
| calculated at https://tools.finra.org/arbitration_calculator/
| - they seem to start at $50 for specified damages, and $1575
| for unspecified damages. (Obligatory: not a lawyer, not at
| all recommending that anyone do this without consulting one.)
| notyourwork wrote:
| Submitting a negative review is a lot less effort than
| dealing with a court case. I think it's unlikely a small
| percentage of 100,000 will pursue.
| User23 wrote:
| You're talking about people who banded together to drive up
| share prices. They've already demonstrated an ability and
| willingness to coordinate.
| hutzlibu wrote:
| But they are probably still not the majority of its
| users. Anyway, Robinhood is likely dead in the long run.
| katbyte wrote:
| If 1% do that's 1,000,000...
| TylerE wrote:
| That's a whole 6 hours of profit. They're at almost $1
| bill in annual revenue for 2020.
| o-__-o wrote:
| >court case
|
| I thought it is arbitration (which is less effort than a
| court case)
| m463 wrote:
| But remember the arbitration problem that doordash faced
| when a law firm created an easy-to-arbitrate system for
| workers?
|
| just do a web search for "arbitration backfired"
|
| you'll find this and other interesting cases :)
| User23 wrote:
| And under California law consumers cannot be forced to bear
| those costs.
| Mountain_Skies wrote:
| IIRC, customers still have to pay the filing fee, but
| beyond that, the costs are on the company.
| adolph wrote:
| Some previous (flagged) discussion about the Patreon mass
| arbitration story.
|
| https://news.ycombinator.com/item?id=24016732
| malwarebytess wrote:
| I think there's a very good chance the reviews were not
| organic, but instead automated.
| mrep wrote:
| I highly doubt that. I filed a 1 star review and it
| literally only took like 30 seconds as you don't have to
| write anything to rate it.
| toomuchtodo wrote:
| You can automate arbitration filings for users just as
| easily. Can't wipe away 100k arbitration requests as easily
| as the same amount of negative reviews.
|
| I'd even contribute financially to have such an app built,
| because if FINRA and the SEC won't act (no surprise!),
| citizens can and should.
| mdoms wrote:
| Got any evidence for that?
| alasdair_ wrote:
| Some circumstantial evidence would be the apple app
| scores not having the same magnitude of response.
| midasz wrote:
| Highly doubt that, and wonder why you'd even think that -
| it's a pretty big movement with vocal users, submitting a
| review because you got scammed (which is what happened) is
| a very low threshold.
| lettergram wrote:
| Within 2 hours of this happening I personally know of at least
| $2m leaving robinhood accounts. Everyone (and I mean literally
| everyone) I know that used robinhood are closing their
| accounts.
| drexlspivey wrote:
| Where are they moving to?
| boatsie wrote:
| I seriously doubt it will be even a blip on their radar. In
| fact, I think this will be their "no such thing as bad
| publicity" moment and they will have massive growth. People
| have short memories (no pun intended) and the switching costs
| are also nontrivial.
| csmiller wrote:
| What are the switching costs? Seems fairly trivial to move
| assets between brokerages.
| elliekelly wrote:
| RH charges $75 to transfer holdings to a different broker.
| If you have a big account that's probably worthwhile but I
| get the impression a lot of RH customers are small-time
| people who are just dabbling in the stock market for fun.
| If your account only holds $500-1000 of securities a $75
| fee is pretty steep.
| mrep wrote:
| Or you know, just don't open any new positions there and
| transfer your funds back to your account once you have
| closed the rest like I did. Then you have nothing there,
| can deactivate your account and just open an account at
| another place.
| franklampard wrote:
| Effectively $0. Outbound costs $75 at Robinhood. If you are
| moving more than a few hundred dollars, the new broker will
| reimburse the it.
| chrischen wrote:
| They did shoot up in the app store _during_ this negative
| publicity. It could be that a vocal minority _just don't
| matter_.
| thinkingemote wrote:
| They shot up earlier in the week of the publicity because it
| wasn't negative right then and they were the business of
| choice for the user of wsb. All meme stocks were being bought
| using this.
|
| On Thursday and Friday was when the publicity turned
| negative.
| belorn wrote:
| My bet is that this will be lasting to the point where
| Robinhood will need to change name. Out of the things people
| are a bit careful with and want full control of, their own
| money is distinctly one of those. The Robinhood story as it
| being describe include both forced sales, as well as not being
| allowed to user their money to buy stocks. Both seems pretty
| scary to would be new customers as well as existing ones.
| jsonne wrote:
| Robinhood canceled my GME calls orders at 1am and sent a
| message confirming that _I_ canceled them (I didn 't). Doesn't
| matter if they're technically in their rights or not the trust
| is shattered and I'm closing my account. Everyone else even in
| IRL spaces agrees with the sentiment. Anecdotally my barista at
| my local coffee spot told me to move to Webull or another
| platform so the sentiment seems to be widespread.
| the-dude wrote:
| Isn't the saying that if your taxidriver or shoeshiner starts
| talking about the stock market, it is time to get out?
|
| Do we need to add barista's to the list?
| thinkingemote wrote:
| freetrade in the UK might be worth looking at for an example of
| a business trying to repair their brand.
|
| They basically said they were deeply sorry, didn't try to cover
| up and blamed their bank and clearinghouse.
| ummonk wrote:
| Their messaging around this has been a total self-own. I don't
| know whether they're trying to protect their relationship with
| the DTCC or something else, but Vlad's lack of clarity
| understandably makes most people blame RobinHood.
| boatsie wrote:
| I don't know Vlad's background but is it possible he doesn't
| understand the exact details?
| ergocoder wrote:
| Claiming the CEO doesn't know how their own company works
| doesn't really help.
| [deleted]
| headmelted wrote:
| Even without the user exodus I'd think there's cause for
| concern regardless.
|
| They've said their financial position is stable, yet they're
| stopping trades because of the volume moving through their
| clearance system (if I've understood what Vlad was saying to
| Bloomberg correctly, they no longer use an external clearing
| house).
|
| If it walks like a duck, and it quacks like a duck, then it's
| probably a duck. And it's probably good that it's walking as it
| doesn't sound like there's a whole lot of liquidity left to
| swim in.
|
| I worry about this for other massive firms, even leaving the
| current circus aside. As unlikely as it might seem, what
| happens if a Schwab or a Fidelity or a Vanguard gets into
| trouble from some as-yet-unseen event?
| throwaheyy wrote:
| I don't think so. Their settlement collateral deposited with
| the clearing house is unrelated to their own profit, loss or
| debt. It's to cover customer trades in the event of a
| customer defaulting on settlement.
|
| The collateral can be thought of as more like "server
| capacity". Their customers' demand for usage of the
| collateral exceeded what was available and they had to reject
| new trades with, continuing the analogy, an HTTP 429. That
| doesn't mean that they're suddenly insolvent.
| headmelted wrote:
| I agree this isn't about Robinhood's solvency, but it also
| means they're essentially unable to execute trades in a way
| that's consistent with a free market.
|
| Their business requires them to perform this function, and
| if they can't do that because they've run out of their own
| money with which to underwrite these trades until
| settlement, then that's very much a crisis of liquidity
| however you slice it (which you can't because, you know,
| liquid. Badum-tisch).
| hehehaha wrote:
| To be honest, people will eventually return. RH is the cost
| leader by a wide margin and its very unique to its business
| model via data arrangement with Citadel. In aggregate, total
| savings they pass down to retail traders is in the billions.
| With options trading at all time high, savings for 2020 was
| likely in tens of billions.
|
| Edit: upon looking at some aggregate data via OCC, appears I
| overestimated savings.
| koolba wrote:
| Don't Fidelity, E*TRADE, Ameritrade, and just about it
| everyone else have zero commission trades now?
| TuringNYC wrote:
| Not on options
| alasdair_ wrote:
| While technically true, I wonder if people care much
| about a $1 fee on an entire contract (100 shares).
| ll931110 wrote:
| The fee can still be very significant, especially once
| you engage into complex options strategy (e.g. call
| spread / put spread / iron condor). That tends to trade
| in significantly larger quantity (e.g. you can have a 50x
| call spread), in which the fee is now $100 ($50 for
| buying a call and $50 for selling another call).
| jb1991 wrote:
| Most of the time you'd be trading more than one contract,
| though. Say you want bet on cheap out of the money
| options, you could easily see a commission of $10 - $50
| on a single trade if you buy up a bunch of them.
| koolba wrote:
| I guess if you're buying lottery tickets at $.01-$.02 per
| contract it's be a 50-100% change in costs.
| goatinaboat wrote:
| _RH is the cost leader by a wide margin and its very unique
| to its business model via data arrangement with Citadel_
|
| It's free right up until the point they decide to charge you
| 100% of your money.
| alasdair_ wrote:
| Almost every single broker offers commission-free trading
| now.
|
| And some of them (Fidelity, Vanguard etc.) didn't pull
| trading when it got volatile. They also have far more stable
| platforms.
| DLay wrote:
| I think it's also important to mention that Robinhood also
| has the most brain dead simple UI out of all the trading
| platforms I've seen.
|
| The brokers you've listed have more complicated user
| interfaces than the casual trader would care to learn
| about. Fidelity and Vanguard also probably care way more
| about their reputations than to gamify their platform like
| RH does.
| endisneigh wrote:
| I don't use Robinhood so forgive my ignorance, but what
| savings are you referring to?
| didibus wrote:
| That trading stocks on it and all of its features are free,
| no fees and no commission.
| Tenoke wrote:
| You are still getting a hidden fee on most transactions
| due to the sold order flow. Rh itself earns 17 cents per
| 100 shares and 58 cents for options. The loss for the
| user is certainly much higher though and as the cost is
| hidden they likely make more trades.
|
| https://www.google.com/amp/s/www.cnbc.com/amp/2020/08/13/
| how...
| iaabtpbtpnn wrote:
| What costs are they leading in? Stock, ETF, and mutual fund
| trades cost nothing on all the major platforms. (Maybe not
| options, but most people shouldn't be trading options, as
| they all just learned.)
| skizm wrote:
| They would have gone out of business if they did not restrict
| trading and GME went back down to the 20-40 USD range though.
| oneeyedpigeon wrote:
| Would they have gone out of business if they had suspended
| _trading_ as opposed to suspending just _buying_?
| skizm wrote:
| Selling helps them cover all the loans they gave out to
| pretend that buying / selling stocks is instant (and
| depositing money). The clearing house they use dramatically
| increased the collateral needed due to market volatility
| and they basically did not have the cash. They literally
| had to go raise another billion dollars in funding over
| night to cover costs.
| ffggvv wrote:
| there isn't going to be an exodus.. just a whiny minority
| complaining they cant bankrupt themselves
| dang wrote:
| Please stop posting flamebait and/or unsubstantive comments
| to HN. You've done it repeatedly and we ban that sort of
| account.
|
| https://news.ycombinator.com/newsguidelines.html
| vertis wrote:
| I don't have a Robinhood account, and I'm not involved in the
| GME/WSB stuff, but I would think twice about opening a
| Robinhood account now.
|
| Indeed, it's been educational about which brokers are using
| other clearing houses (sorry if I get the terminology wrong),
| and which are direct.
|
| But then badly behaved businesses like Godaddy don't seem to
| suffer or go out of business, so I suspect Robinhood won't have
| too many long term problems.
| bena wrote:
| I've seen people who _opened_ RobinHood accounts after all of
| this debacle with the forced selling of shares, etc.
| gruez wrote:
| >Indeed, it's been educational about which brokers are using
| other clearing houses (sorry if I get the terminology wrong),
| and which are direct.
|
| Wait what? Is there a list somewhere? AFAIK interactive
| brokers (which doesn't engage in PFOF) also shut down
| trading.
| beezle wrote:
| Re IB: if you are a "Pro" account generally not. If you are
| a "Lite" account, yes they get paid for order flow.
|
| As to the other point, I belive the issue was in
| settlement, not clearing, ie with DTCC collateral reqs.
| [deleted]
| vertis wrote:
| Yes, this[1] was the one that I found when searching. It
| shows that Robinhood is it's own, but as we know they route
| to Citadel.
|
| A bunch of others had a problem when Apex Holdings told
| them to restrict trading (or something along those lines).
|
| [1]: https://investorjunkie.com/stock-brokers/broker-
| clearing-fir...
| Daho0n wrote:
| How come it works from all the way over here in
| Scandinavia? No problems with GME while RH was shutting
| it down.
|
| Also, Robin Hood - the irony. They are clearly for the
| rich against the poor. More like the sheriff of
| nottingham!
| capableweb wrote:
| I'm also in a European country and using my national bank
| for trading. In the end, my bank is using JP Morgan for
| NYSE trades, so in the end would be up to JP Morgan to
| block trades. But everything seems to have worked fine
| here all week.
| Gwypaas wrote:
| Because we buy stocks on the open market paying courtage
| for someone to execute the trade.
| jonp888 wrote:
| Just luck. Trade Republic, a Robin-hood-alike in Germany,
| also had to shut down GME purchases.
| gruez wrote:
| >How come it works from all the way over here in
| Scandinavia? No problems with GME while RH was shutting
| it down.
|
| Maybe because there's already a high barrier to trading
| US stocks (or stocks in general), so there wasn't enough
| people piling on to strain the brokerage's balance
| sheets?
| egwor wrote:
| Agreed. Probably highly likely that few others using that
| broker were involved.
| doanerock wrote:
| The problem is not the cleaning houses, this article
| explains it really good
| https://www.bloombergquint.com/markets/clearing-firms-
| preven... So there are couple of issues, one is the two
| day settlement, the other is increased capital
| requirements put in by DTCC.
| tptacek wrote:
| This subthread is confusing clearinghouses, clearing
| brokers, and execution brokers.
|
| Citadel is an execution broker. Their job is to match
| buyers and sellers.
|
| Apex (in these conversations) is a clearing broker.
| Robinhood is its own clearing broker. Clearing brokers
| are responsible for ensuring that money and stock
| actually changes hands (this takes 2 days, but all of
| these firms work together to create the illusion, using
| credit, that it's instant; those credit arrangements are
| why brokerages post collateral).
|
| Clearing brokers are members of clearinghouses. The
| relevant one here is (I think) NSCC, which is owned by
| DTCC. Policy set at DTCC determines how much collateral
| needs to be posted to cover any particular set of trades.
|
| DTCC drastically ratcheted up the amount of collateral
| required to cover trades in meme stocks, which had the
| effect of 10x'ing the amount of cash Robinhood was
| required to post to insure that it would not go out of
| business before its current set of in-flight trades
| cleared. It made the same requirement of Apex, which
| passed restrictions down to its customers. These
| companies are contractually required to make good on
| collateral requirements, so there isn't much choice
| involved.
| maest wrote:
| This is not the first time RH has gone down during critical
| moments in the market.
|
| Yet their userbase grows and their users come back. They'll
| be fine.
| jb775 wrote:
| This wasn't "going down", it was active blocking of
| specific stocks because RH exposed themselves to massive
| risk by assuming the hedge funds they were pimping their
| customers out to would never be swiftly bankrupted.
|
| RH was essentially letting their users pay full price for a
| stock, then lending that stock to hedge funds so they could
| use it against the actual stock owner by selling it short.
| Since the borrowed stock has already been resold (the stock
| the HF didn't own to begin with), now the question is if
| the HF can even afford to buy them all back. This is why
| the entire market dropped the other day, because HFs were
| selling off other positions to come up with the money. Sell
| offs could get a lot worse considering $GME is still
| currently shorted over 100%.
|
| If the govt steps in to save the hedge funds at the expense
| of millions of average Joe's, or if the hedge funds pull
| some sort of bankruptcy loophole card resulting in the
| average Joe's holding the bag while they continue on, we
| could see people revolt against the entire financial system
| as we know it.
| teddyfrozevelt wrote:
| Maybe it's stupid, but I could forgive the outages, maybe
| because I wasn't doing any time critical trades when they
| happened. But deliberately limiting trades on dozens of
| stocks is so far past the line for me that I'm leaving
| Robinhood as soon as I find another brokerage I like.
| wutbrodo wrote:
| During the other times, was their the perception that they
| were screwing their users over due to pressure by large
| financial institutions? That's a pretty salient difference
| for their brand.
| codesternews wrote:
| This time it is different. Previously they had glitches
| etc. This time they by choice restricted users which lead
| their users loose.
|
| Whole concept they broke. If any investor still uses
| robinhood they are stupid. Your money and stock is not safe
| with Robinhood. They can restrict you any time.
| tptacek wrote:
| Your claim that RH restricted users by choice seems
| false. RH is required by NSCC/DTCC rules to post
| collateral for trades in the process of settlement. As a
| result of volatility, the collateral requirements for
| meme stocks shot up from something like single digits to
| something perhaps approaching 100%. Robinhood was
| apparently forced to draw down a $600MM line of credit
| just to cover the trades it had already allowed.
| inkaudio wrote:
| This is for stock sales which they did not restrict.
| Robinhood stopped the purchase of stock which does not
| require a collateral because the money is coming directly
| from the users cash balance. Don't believe whatever they
| say, RH action was specifically to stop the short
| squeeze.
| jonp888 wrote:
| This is just not true. They do have to post collateral
| for purchases, and the customer's own money cannot be
| used as the collateral.
| skedaddle wrote:
| Just curious -- why not?
| kasey_junk wrote:
| The search terms you want is "T+2 settlement". TLDR all
| trades take 2 days to settle but brokerages abstract that
| via "loans" and collateral.
| tptacek wrote:
| Tell me if I'm way off here:
|
| The clearinghouse collateral requirements in part protect
| the clearinghouse from things that can go wrong _at the
| brokerage_ , like if Robinhood had a vulnerability that
| let people place huge orders without paying for them, and
| they were, like, put out of business overnight.
| pfisch wrote:
| Yeah....except all the more legitimate brokerages didn't
| limit anything. TD Ameritrade made me place limit orders,
| but that is not even close to the same thing.
|
| Fidelity was unaffected.
| sroussey wrote:
| Public was limited by their clearinghouse. Several
| brokerages did this.
|
| Some did not, mostly since their clientele wasn't buying
| these anyhow.
| pfisch wrote:
| Name a big, reputable brokerage that did this.
| tptacek wrote:
| A nice thing about being a big, reputable brokerage is
| that you have access to big, reputable piles of cash to
| cover clearing collateral.
| pfisch wrote:
| If you are operating a brokerage that can't cover when
| people are buying stock with all cash then you should be
| in breach and be forced to shut down and/or forced into
| bankruptcy by owing all the stockholders of the stocks in
| question the actual damages you caused them.
|
| Your only real job is to operate fair and unbiased
| bid/ask spreads and execute trades fairly. If you aren't
| going to do that then you are running a scam on your
| customers.
|
| How is this fundamentally different then you placing a
| bet at a roulette table and the casino changing the rules
| mid-spin to make sure you will lose?
| tptacek wrote:
| A casino will absolutely shut a machine or a table down
| whenever the hell they want.
|
| I don't understand your argument. RH either has the money
| to put up collateral or they don't. They didn't this
| week. That seems like the end of the story. They can't
| just "choose" to have more cash on hand than they
| actually have.
| pfisch wrote:
| A casino definitely can't shut down a blackjack game in
| the middle. That is not true.
|
| What are you even arguing here? That the purpose of a
| brokerage is to take customers money and play weird games
| with it to maximize profits and is allowed to just not
| have enough money to cover all cash purchases?
|
| That is like if a bank just didn't let customers withdraw
| their money, and kept operating like nothing was wrong.
| Clearly illegal.
| tptacek wrote:
| Robinhood stopped allowing you to play new games of
| blackjack. You're suggesting that, as a casino customer,
| you could say "you can't shut this table down! I was
| going to make back my money on the next hand!" which is
| pretty funny.
|
| I don't think this is at all like a bank that won't let
| you withdraw your money. I think it's like a brokerage
| that has to post 100% collateral --- out of their money
| --- for every share of GME that you ask it to buy,
| doesn't have the money to post that collateral, and thus
| can't buy any more GME for you.
| pfisch wrote:
| No, that analogy doesn't fit. Fully half of robinhood
| users owned GME stock. They were in the middle of a bet.
| RH created a situation where the stock could only go
| down.
|
| "I think it's like a brokerage that has to post 100%
| collateral --- out of their money"
|
| How is this not the customers money? You deposited 100%
| of the collateral with RH. Banks can take your money and
| make loans with it so the bank can make profit, but only
| so long as they have your money for you when you want to
| use it.
| tptacek wrote:
| Again, this is pretty funny. It really does sound like
| you're saying the casino can't kick you out if you're in
| the middle of playing some blackjack strategy. "I'm not
| done yet!"
|
| I'm pretty sure everyone retained their ability to get
| cash out of Robinhood, for whatever that's worth.
| dyslexit wrote:
| I believe this explanation but I do still have questions.
|
| Why didn't they just restrict buying like they did in
| Friday instead of halting it completely? By halting it
| completely they caused a panic which caused lots of
| people to sell.
|
| Why didn't they halt or restrict buying of any other
| stocks? Why only the meme stocks? It should have affected
| their financial responsibilities to the clearinghouse the
| same ways, no?
|
| Why did they give no warning and explanation for what was
| about to come? The abruptness of it was obviously going
| to contribute to the panic.
|
| The standard expiration date for meme stock options was
| the day after they halted buying. This caused their own
| customers holding those contracts to lose money. Why did
| they claim they were doing this "to protect their
| customers" when it was their customers who got screwed by
| this?
| tptacek wrote:
| No, clearinghouse requirements can apparently be per-
| symbol, and it's been reported that that's exactly what
| happened this week. It's a function of the volatility of
| the stock and also the proportion of the stock to all
| stocks being traded at a particular brokerage. There's an
| actual published formula somewhere on NSCC's site.
|
| Why did they give no warning? I don't know, I think
| they're a clownfire.
| un-devmox wrote:
| Why did the collateral requirements shoot?
| likpok wrote:
| The traditional explanation of clearing is that it's to
| solve the problem where I buy a share of Microsoft from
| you for $100. The trade won't complete for a couple days
| so there's a risk that either I don't show up with the
| money or you don't show up with the share.
|
| This might happen because I went bankrupt, or MS starts
| trading for 1000 and you'd rather not give up the share,
| or whatever. To solve this,there are clearing houses that
| have collateral requirements to help ensure that the
| trade is executed as it was supposed to.
|
| Most stocks don't change that rapidly, so there's
| relatively low risk that someone blows up. But GME has
| both extremely high volatility and is highly overvalued,
| which makes the risk of someone trying to walk away from
| it can't meet their obligations much higher.
| maest wrote:
| Because of the large realised vol in those names (paired
| with large future expected volatility) the DTCC asked for
| much larger margin requirements.
| FemmeAndroid wrote:
| You're assuming this, right? Like, they haven't said it,
| and have said on TV twice that this decision wasn't
| related to liquidity.
|
| To be clear, I agree with this assessment, but they're
| being anything but clear about it, which as a user, has
| me even more worried.
| tptacek wrote:
| They reported this morning that their clearing costs
| 10x'd, and it was reported in the NYT and (I think?) WSJ
| yesterday. Further, other retail brokerages and clearing
| brokerages unrelated to Robinhood reported the same
| thing.
| codesternews wrote:
| Does not matter. You are dealing with brokage. Its on the
| brokrage to maintain the service and whenever I want to
| buy/sell my share I could. Not get restricted.
|
| There is no restriction from SEC. Its money in app not
| privacy issue me/people would compromise.
| maest wrote:
| > There is no restriction from SEC
|
| Correct, the restriction is from the DTCC.
| phreack wrote:
| Even assuming you're right, they've taken a massive PR
| hit and the public is convinced that RH screwed over
| their users by choice, and made a profit out of it. I
| don't think they'll come back in one piece, unless no one
| capitalizes on the movement and gets some competition
| going for a while.
| cabaalis wrote:
| You state all this as though their choices were not
| deliberate. Of course they are acting within the rules,
| while trying to foster an appearance of all you can eat
| buffet instant buy/sell, when the market really doesn't
| work that way. However, users came to expect that
| convenience. That business model may be inherently
| untenable in the face of events like this.
| tptacek wrote:
| Your argument is that Robinhood "chose" to create the
| impression that people could trade any meme stock they
| wanted with impunity on their platform, but didn't do the
| work to ensure that they could. I agree, that's a choice
| they made.
|
| The comment upthread argues that Robinhood "chose" to
| retrict trading in meme stocks. That argument appears to
| be false. Robinhood did not have a choice whether or not
| to restrict trading; it simply didn't have the money to
| cover the clearing for those trades.
| capableweb wrote:
| Sounds like Robinhood was setup to fail from the
| beginning, if so. If you make it as easy as possible to
| do trades but then start getting "rate-limited"
| essentially, it was never gonna scale in the first place.
|
| Gonna be interesting to see what gets to replace
| Robinhood for easy and reliable trades in the future.
| tptacek wrote:
| Don't let me come across like I'm defending Robinhood,
| which is an online casino dressed up to look like an
| investment application.
| ditonal wrote:
| Totally right, and furthermore, Robinhood is facing some
| serious solvency issues. Their PR releases claiming this
| was clearing house related was already highly dubious,
| and is self-contradicting because they are blaming it on
| a liquidity issue while saying it's not a liquidity
| issue.
|
| But this is happening at the same time was mass account
| withdrawals/closures, and we're now learning this not
| only threatens their general solvency but ability to
| execute trades. This could easily cause a feedback loop
| that empties their accounts, at which point people are
| going to be unable to withdraw their cash which is goign
| to cause a bank run and drill the nails into their coffin
| even further. Healthy companies don't need to emergency
| borrow a billion dollars. If you have less than $250,000
| on Robinhood, your account is FDIC insured so you'll
| eventually get your money back...but I think most people
| would prefer not to go through that process.
|
| Robinhood is on a death spiral and prudent financial
| advice is to move any assets you have off of it as soon
| as possible.
| quercusa wrote:
| FDIC is for banks. SIPC (of which RH is a member) is for
| brokerage houses.
|
| https://www.sipc.org/about-sipc/
| [deleted]
| doanerock wrote:
| "250,000 on Robinhood, your account is FDIC insured" That
| is only for the cash on hand, the securities are covered
| by SIPC.
| JMTQp8lwXL wrote:
| The solvency issue is the root cause leading me to leave
| Robinhood personally. The limitation on market orders was
| the symptom; the cause was a rotten core. This is the
| true reason why everyone should leave Robinhood. I do not
| want to deal with realizing FDIC/SIPC insurance
| preferably ever in my lifetime.
| o-__-o wrote:
| You dealt with it when you eg had a Wachovia bank account
| before they became Wells Fargo. You saw it happen en
| masse in 2008.
|
| FDIC guarantees funds to the bank. If the bank fails FDIC
| ensures YOU continue to access your account. If this
| means taking the bank into receivership and changing
| owners so be it. You can go to the FDIC website to see
| what banks have failed. Many do over the course of a year
| but the account owners are never at risk outside of the
| insurance amount on a single deposit account.
|
| I hope you don't keep more than 250,000 in an fdic
| insured account without additional insurance (which is
| silly because you could just open another account at the
| institution for additional coverage)
| toast0 wrote:
| > Healthy companies don't need to emergency borrow a
| billion dollars.
|
| Sure, move your holdings out of RH. I don't have an
| account there, and never had, and probably won't ever.
|
| But, regardless of RH's health or lack thereof, most
| companies don't have a sudden change in collateral
| requirements.
|
| If what I understand from forum posts and twitter threads
| and youtube interviews or CEOs on speakerphone is
| accurate,
|
| On thursday morning, DTCC changed requirements so that
| net buy orders for GME pending settlement would need to
| have 100% of the value of the shares posted as collateral
| (marked to market at end of day). I don't know what the
| requirement was on Wednesday, apparently 1-2% is common,
| but I'd hope it was already elevated earlier in the week.
|
| And that colateral has to be owned by the clearing firm
| (which is RH for RH), and apparently can't be formed from
| clients' money, possibly including settled cash from the
| clients who made the buy?
|
| This isn't a long term cash need, it's only while there's
| a large amount of net buys in volatile stocks awaiting
| settlement. Assuming either clients stop buying so much
| (because some are selling, or it gets borint) after a
| while or the price stops moving so quickly, collateral
| requirements should go back down and RH can return the
| money. As long as their clients don't stiff them on the
| buys anyway.
|
| That they were able to quickly get a billion dollars
| hints toward fine enough health (or crazy lenders).
|
| More worrisome is that they apparently didn't have a plan
| for managing trading in stocks with high collateral
| requirements (some established brokerages had enough
| collateral to do nothing, others limited trading to
| settled cash and similar trades with reduced credit risk
| for the brokerage). I don't necessarily expect an upstart
| brokerage to have unlimited collateral, but planning and
| managing around insufficient collateral should have been
| done; and more transparency would be nice. Maybe they had
| done some planning though, I certainly wouldn't be able
| to get a $1 B loan in a single day, although who knows
| what it cost them.
| sgregnt wrote:
| This is tangential to RH, but never the less related
| issue: For many years now I was wondering how exectly the
| ETF work and whether when I buy an ETF I can be 100% sure
| the issuer can follow through on their obligations?
|
| What mechanism are there in place to insure that ETF will
| not deviate from the underlying stocks it should
| represent?
|
| I found it difficult to understand the intricacies
| related to this question.
|
| Here is one example: Suppose I was holding ETF with GME
| stock in it, the ETF issuer might have decided he knows
| better and sell the stock expecting its price to drop in
| the future. Meanwhile the issue will attempt to "follow"
| the stock by other means. Ultimately is there a way to be
| sure the issuer will not fail, if GME beats all
| anticipated expectation the issue might fail to reflect
| the new GME price...
|
| What mechanism are there in place to insure that ETF will
| not deviate from the underlying stock?
| maest wrote:
| Each ETF share is backed by a unit of the underlying, so
| there's no price risk for the ETF issuer.
| toast0 wrote:
| An investment in an ETF or other mutual fund is putting
| your money in the hands of the managers of the fund. They
| set out objectives for the fund, but they don't
| necessarily have an obligation to meet those objectives
| or to keep the same objectives. They can change the
| objectives within the processes required by the bylaws of
| the fund. Most of the objectives will have weasel words
| for management discretion in case of volatile markets.
|
| They have quarterly reporting obligations, and you can
| review those reports to see how they're doing. If you
| don't like what you see, you can sell the funds and/or
| file a shareholders' lawsuit and/or file a SEC complaint.
|
| If you don't like that, the good news is with zero
| comissions as the norm, and fractional shares at many
| brokerages, you could build up your portfolio to match an
| index of your choice, without significant monetary
| transaction costs. It would take a lot of time to setup
| and when you made contributions, and dividend processing
| effort could be significant.
| birdsbirdsbirds wrote:
| They are liquidated once the deviation is too big.
| [deleted]
| [deleted]
| ll931110 wrote:
| As long as Robinhood offers excellent UX, people will return.
| Look how many claims over Facebook's digital privacy, including
| companies boycotting Facebook, and yet people still use it now.
| Good UX is hard to beat.
| PeterStuer wrote:
| So where do those friends plan to migrate to?
| kilroy123 wrote:
| I agree. They're in big trouble after this. I think a lot of
| people actually will switch. If they really have an IPO after
| this, expect a lot of madness.
| llcoolv wrote:
| This is a very good point, the question is where to go? I am
| European, we don't even have Robinhood here, so I had a dead
| eToro account with 140 EUR on it and Interactive Brokers, which
| we all thought was synonymous with quality and respect.
| However, they folded first, along with Degiro, which was the
| other "well-reputed" option available to us. Everyone started
| running to XTB, which limited trading on Friday
| afternoon/night.
|
| In the US there is Webull, which went against their clients
| initially and then reversed. As an European - where should I go
| to? Binance/Kraken seems the only reasonable option at this
| point, however crypto has ties to the real world only on macro-
| economic scale (although very relevant) and you cannot use your
| "capital" to influence the world around you in a good way.
|
| P.S. I know that Fidelity and other well-reputed vendors didn't
| turn coats, but I am not sure it is an option here. P.P.S. This
| reminded me of https://www.investopedia.com/terms/t/tina-there-
| no-alternati....
| thinkingemote wrote:
| I don't know but it seems like the more reliable businesses
| in Europe to use have higher fees or monthly charges...
| rapnie wrote:
| > This is a very good point, the question is where to go?
|
| There's Bux in The Netherlands. Haven't used them, though.
|
| https://getbux.com/
| [deleted]
| trident5000 wrote:
| They are the number 1 app in app stores right now. People are
| morons. They're not going out of business anytime soon.
| indecisive_user wrote:
| They are the #1 app _because_ people were interested in
| trading GME, and the network effect led to lots of
| recommendations to download robinhood. Now there is a very
| negative sentiment towards robinhood. Very few people online
| will recommend it.
|
| Worth noting that Webull, a robinhood competitor, is the #2
| app in the play store. They initially restricted stocks but
| later allowed people to freely buy and sell.
| matttb wrote:
| And I think more importantly, Webull said from the
| beginning what the issue was and communicated their efforts
| to fix it. Robinhood put up a blogpost that made it sound
| like everything was their choice and then went completely
| silent the entire day.
| almost_usual wrote:
| > Robinhood won't go out of business because of lawsuits, it'll
| be an exodus of users.
|
| I would imagine most users care more about money and
| convenience than principles. I doubt they lose many users in
| the long run.
|
| If the bubble or market crashes though they will lose a large
| user base for a long period of time.
| matttb wrote:
| I think many users feel that RH affected both their money and
| convenience
| Triv888 wrote:
| Fuck congress, reddit, robinhood and others for trying to keep
| rich people rich.
| 8ytecoder wrote:
| This thread is full of people who have no idea how the exchanges,
| brokers, clearing firms and clearing houses operate.
|
| https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
| thinkingemote wrote:
| This happens in every thread about every subject. Most users
| don't know anything, any expert will tell you it's the case
| when their subject is discussed here. The onus is on the
| knowledgeable to educate and correct and help and be
| charitable, and we usually see this.
|
| We shouldn't try to shame or label users without at least
| trying to help first. Try to improve a situation and not make
| things worse. That way HN gets better.
| LatteLazy wrote:
| It's very disappointing. I don't expect people to know these
| things. But on HN, I'd expect them to ask or listen or read
| about it. Instead people just post about how it's a big finance
| conspiracy and how they're going to sue everyone...
| _trampeltier wrote:
| I don't trade stocks at all, I just played a bit around with
| crypto for some years. For me it seems, as traditional stock
| exchanges looks like in stone age compared to the crypto
| world, when I really need days to make the deal in the
| background. Also then I don't understand how it needs one one
| side days to make the deal and on the other side there exist
| HF traders, who do many, some say as many as 1000 trades per
| second, maybe, I don't know .., but how does this work.
|
| I remember some years ago, a normal banc transfer needed
| always 3 working days (so 5 over the weekend). Then came the
| crypto hype and the time dropped to less than a hour, even
| for normal people. I wonder if we see something similar here
| in future.
|
| Also some crypto trading platforms, started to trade with
| stocks in different forms. I wonder how this will play out in
| future. I think traditional exchanges have to move forward
| fast now.
| LatteLazy wrote:
| I agree broadly. I think it's just institutional momentum.
| We could do settlement within minutes for 99% of trades.
| The only reason we haven't is because 100+ years ago people
| though 2 days (T+2) was quick and we haven't updated it.
|
| The EU is gradually forcing its members to do T+1 and
| eventually (I think decades in the future) wants same day
| for most products. That reduces risk and it makes the
| market fairer (RobinHood have had cash flow problems they
| wouldn't have had with T+0 settlement and the big boys
| don't have to worry about that).
|
| I guess we have to wait. Some of these places are still
| using COBOL, a language first introduced in 1959!? That's
| how complex, legacy, under invested etc many back office
| setups are.
| perl4ever wrote:
| >The only reason we haven't is because 100+ years ago
| people though 2 days (T+2) was quick and we haven't
| updated it
|
| T+2 has been around since 2017, not for 100 years. It was
| T+3 before that in the US. Before computers were in use,
| I believe it took 2 weeks and was gradually reduced to
| T+3 during the 70s and 80s.
| powerapple wrote:
| Now I see the value of Bitcoin and Ethereum. Can we build an
| exchange on Ethereum? Maybe handling high number of transactions
| will still be a problem. Can we accept the delay for the benefit
| of decentralization?
| Triv888 wrote:
| I'm glad I left RH about a month ago because I didn't even suffer
| from their non-sense (I left 2 weeks after I signed up). I left
| them because I didn't like their website/interface.
| mdorazio wrote:
| "It will be hard to prove users suffered as a result of
| Robinhood's measures because GameStop and other stocks covered by
| the curbs fell sharply on Thursday after the restrictions were
| announced, said James Cox, a professor at Duke Law School."
|
| Wait, what? Can anyone legitimately make the claim that the
| massive drop in value that cut off the price rise at the knees
| and allowed the worst short positions to cover their losses
| sub-$200 didn't materially harm the users? This is absolute
| madness.
| jcranmer wrote:
| > Can anyone legitimately make the claim that the massive drop
| in value that cut off the price rise at the knees and allowed
| the worst short positions to cover their losses sub-$200 didn't
| materially harm the users?
|
| Very probably. The general principle of Article III
| jurisprudence is that you have to demonstrate concrete,
| particularized harm to bring a case, not generalized,
| theoretical harm.
|
| If your allegation is that your harm arises from "I could have
| made a killing if I bought and sold the stock at appropriate
| times," well that is _theoretical_ harm (especially when you
| undercut buy alleging that you could have done so on other
| platforms). You 'd probably have to allege that you _attempted_
| to buy (alternatively, sell) the stock and Robinhood prevented
| you from doing so, but the fact that you signed a contract
| saying that you acknowledge that Robinhood can prevent you from
| being certain stocks is going to be a challenging hurdle to
| overcome.
| ummonk wrote:
| The harm is more particularized for those whose stock was
| auto-sold at the dip for a margin call because they had
| bought the stock in an instant account.
| gruez wrote:
| Is there proof of this? This gets repeated a lot and the
| best "proof" I've seen was a wsb post claiming they got
| sold "without [their] permission", but stopped short of
| saying whether they were using margin or not.
| Jommi wrote:
| If you use the "instant deposit" feature (its ON by
| default) on Robinhood, you are using margin. Its one of
| the weird things people never really though about.
| nrmitchi wrote:
| One piece of the "Robinhood Abstraction" that is popping
| up a lot right now is that the fact that a large majority
| would have been using margin, _but not known it_.
|
| Much of the nice and fast experience that Robinhood
| offers ("Just signed up? You can start trading!",
| "Initiated a transfer? Start trading now!", "Just sold
| something? Rebuy something else immediately!") are all
| powered by the fact that these are all technical using
| margin.
| jcranmer wrote:
| There are definitely same claims for harm that are stronger
| than others. Whether any of the 6 (!) class action suits
| currently pending actually claim that harm is a different
| matter.
|
| Of the stuff I see on court listener:
|
| * 3 don't have documents available (and I'm not going to
| bother signing up for PACER just to find out)
|
| * 1 has a claim predicated on "I could have bought or
| shorted GME" (yeah, not gonna fly)
|
| * 1 has a claim predicated on "the value of GME stock fell,
| causing me loss" (doesn't mention if the stock was actually
| sold, so it's purely paper loss, so really not gonna fly)
|
| * 1 has a claim predicated on "I tried to buy, but
| couldn't" (best chance of succeeding, but I think they're
| still screwed anyways)
| tptacek wrote:
| You should sign up for PACER. It's easy (although the web
| interface is horrible) and costs basically nothing at the
| scale you'd be using it at. It's one of those things you
| won't use often but you'll be happy you set it up, like,
| a couple times a year.
| jcranmer wrote:
| Most of the cases I'm interested in, someone has already
| signed up for PACER and added them to courtlistener by
| the time I get to it. Or it's a SCOTUS case and the
| entire docket is accessible for free on supremecourt.gov
| :-)
| tptacek wrote:
| It was the same for me, but I like it when I can grab
| something that hasn't hit Courtlistener yet for, like, 50
| cents. :)
|
| It's a good message board power-up, I guess.
| nullc wrote:
| Loss of an unlawful gain wouldn't be an actionable harm in
| any case.
|
| "I intended to buy at a higher price in order to manipulate
| the price of an asset well above its value, and was harmed by
| being delayed until a later time where I could buy it at a
| lower price" -- not going to fly.
|
| If RH is inadequately disclosing the risks of margin trading
| then some of their customers that had positions closed due to
| margin requirements might have cases.
| dmurray wrote:
| The vast majority of GME buyers could never be considered
| guilty of unlawful market manipulation. "I intended to buy
| the stock because I thought it would go up" is a pretty
| good reason. (OTOH I don't really believe such investors
| have a strong case against RH).
| nullc wrote:
| You miss the point of my comment, I think.
|
| "I was harmed because I was delayed from buying at a
| higher price and instead could only buy at a lower price
| later!" -- only being able to buy at a lower price later
| is only a "harm" in the sense that it prevented price
| manipulation.
| prepend wrote:
| In this case the concrete harm is easy to show as someone
| could just show the number of shares their account could have
| covered purchase at $200/share when buys were blocked. And
| multiply that by the gain they would have made selling
| Friday.
|
| This is an easily quantifiable and concrete claim that might
| be brought up by every Robinhood user with cash in their
| account.
|
| They would be safer if the stock had continued to drop.
| PartiallyTyped wrote:
| Short Ladder attack during low volume caused by inability to
| buy.
| pmichaud wrote:
| I know nothing, so here's a question: instead of framing it
| like the concrete harm was lack of profit (which is
| theoretical), could they frame it as the concrete harm being
| that robinhood turned the situation from potentially
| profitable to no chance of profit?
|
| Like if I'm fishing, I might not catch a fish that day, but
| if you collapse the pier I'm fishing from then you've
| concretely caused particular harm to my chances of catching a
| fish?
| jcranmer wrote:
| I am not a lawyer, and so I generally only know what law I
| find out from reading cases that interest me. And that
| means that while I do know several general legal
| principles, I am generally ignorant on how those legal
| principles actually get applied in boundary cases.
|
| Answering this sort of question likely requires digging
| through cases at the district and circuit court level to
| find people who made this kind of argument, and seeing if
| the court bought it or not. I'm not paid to do that, and
| the people who are are paid big bucks to do so.
|
| But my suspicion is that you have to draw a pretty strong
| link between the actions of the defendant and your losses,
| to the point that you really no had other option than to
| eat the losses. In the case of the pier collapse, you might
| be able to swing that if there were nowhere else you could
| fish from. But in the case of Robinhood, I'd be surprised
| if you could sustain that argument, especially because
| you've signed this pesky contract.
| newacct583 wrote:
| > Can anyone legitimately make the claim that the massive drop
| in value that cut off the price rise at the knees and allowed
| the worst short positions to cover their losses sub-$200 didn't
| materially harm the users?
|
| Yes, because you'd have to prove that Robinhood volume alone
| caused that drop in price. Robinhood isn't that big, and GME
| volume was crazy on Thursday.
|
| It's equally likely (and equally impossible to prove) that
| Robinhood _saved_ their users money by preventing them from
| investing in a stock that was already up 500% and clearly
| overvalued relative to its fundamentals.
|
| This is the part that gets me about this: even now, after the
| mania has passed, everyone still thinks that GME was somehow a
| "sure thing" investment driven by a clearly incorrect
| understanding of how short trading works. And even now, after
| the magical short call rapture that was supposed to have come
| on Friday never materialized, people still want to believe that
| it would have kept going up and up and up.
|
| Guys, it wouldn't. It's a bubble. They pop. Everyone trying to
| buy at the peak was making a terrible investment decision.
| Daho0n wrote:
| Let's see in a few months if it were the peak. I doubt that
| very much and my money is on it.
| newacct583 wrote:
| I say this with genuine love in my heart, and hoping dearly
| for you to see this more clearly: you got scammed. Those
| early short positions[1] are closed out, losses have been
| taken, GME is going to burble along for a bit as the people
| who scammed you exit their own positions and then it's
| going to crash back down to $80 or less. It is no longer a
| short squeeze, this is a speculative bubble sustained by
| people like you who were lied to about it being a short
| squeeze.
|
| [1] Obviously people are taking out _new_ shorts like crazy
| on this stock given the bubble.
| pfortuny wrote:
| All bubbles pop, all soap becomes a bubble. Your statement is
| true technically. There is no way to argue with that.
|
| The 1000000-dollar question is "when".
|
| Zerohedge (banned here) has been forecasting the pop of SPX
| and Nasdaq for several years now...
| LatteLazy wrote:
| Yes, because if they'd bought more they'd have lost money, and
| RobinHood only stopped them buying.
|
| "but we could have driven the price up by cornering the market"
| I hear RobinHood/WSB users say.
|
| Maybe, but that would be illegal market manipulation. So if
| your case is that you lost out because RobinHood wouldn't
| facilitate a crime, you have a poor case.
| PartiallyTyped wrote:
| Ladder short attack caused the price to drop during the low
| volume.
|
| Every time artificial limits were imposed by RH, the price
| dropped in __all__ the restricted stocks. That is when they
| restricted shares to 0, or to 2, and subsequently to 1, and
| again to 0.
|
| On Friday, there were puts expiring and HFs stood to lose a
| lot, they didn't, and the answer is obvious as to why.
| gruez wrote:
| Probably because those are theoretical losses. The previous
| paragraph is also relevant:
|
| >However, Robinhood is not legally bound to carry out every
| trade and the lawsuits will not succeed without evidence the
| company restricted trading for an improper reason, such as to
| favor certain investors, according to several legal experts.
|
| As mentioned in other threads, robinhood wasn't able to come up
| with the deposit needed for their customers trades. In that
| case I don't see how it's any different than a service outage
| causing you to lose money, but you don't have a SLA in place.
| Alex3917 wrote:
| > As mentioned in other threads, robinhood wasn't able to
| come up with the deposit needed for their customers trades.
|
| That's not true, they only blocked trades on those specific
| stocks. If it was really a liquidity issue then they could
| have rate limited all trades equally regardless of the stock
| in question.
| MattGaiser wrote:
| Those particular stocks had their deposit requirements
| increase, not all stocks.
| ssorallen wrote:
| The collateral required by Robinhood's clearing house to
| trade these stocks was raised to 100%, and it takes 2 days
| for trades to clear. Required collateral for other equities
| was not raised so there was no reason any other equities
| needed to be limited.
| freeone3000 wrote:
| You'll notice on Friday, a list of stocks with high
| volatility had restricted trading - including non-meme
| stocks, like AMD. It's a reaction to higher holding
| percentages.
| nullc wrote:
| The collateral requirements differ from stock to stock.
| Anon1096 wrote:
| The deposit requirements on those stocks were increased
| from 2% to 100%.
| gruez wrote:
| Not really, because the amount of deposit you need to put
| up is proportional to the volatility, among other factors.
| Therefore it makes sense to shut down trading for the
| stocks that incur a disproportionately high amount of
| deposit requirements for them. I guess it's possible for
| them to say "fuck it" and let everything trade until they
| run out of money, but I don't think they have an obligation
| to do that.
| LegitShady wrote:
| The liquidity claim on tv was never supported and was later
| retracted. David Portnoy also called it out directly as
| well. Liquidity was not the reason for Robin hoods actions.
| ALittleLight wrote:
| I don't understand the "deposit needed" aspect. I can't buy 2
| shares of AMC at 12 dollars each but can buy 200 shares of
| TSLA at 800 each? How does that work?
| loceng wrote:
| Favor certain investors - like the ones shorting?
|
| This isn't going to be an obvious clear cut case, and there
| will be plenty of gaslighting as part of the TENS of billions
| of $ on the line.
| gruez wrote:
| Just because their decision favored another party doesn't
| mean it was malicious and they would be liable. If at&t had
| to shut down their network for 2 hours because of a botched
| firmware update, that would heavily favor the hedge funds
| (who probably have redundant connections), but that doesn't
| mean you can go after them for not being able to sell your
| GME stocks.
| loceng wrote:
| The communications records of everyone involved will
| paint that picture for us, as to whether favours were
| played or not.
| tgsovlerkhgsel wrote:
| Assuming someone was dumb enough to put any potential
| shady deal in writing. Wouldn't be the first time, but it
| requires a special kind of incompetence to do that.
| FireBeyond wrote:
| And to be clear, the ones shorting _against_ the position
| _your customers hold_.
| bmitc wrote:
| But there is the possibility that Robinhood was also cutting
| trading to appease Citadel, who to my understanding, just
| happened to re-engage their short positions right before
| Robinhood cut buying to Gamestop stock.
|
| If the story about Robinhood running out of money is true,
| why wouldn't they just ban buying on margin and not all
| buying? I don't understand that.
| elliekelly wrote:
| > If the story about Robinhood running out of money is
| true, why wouldn't they just ban buying on margin and not
| all buying? I don't understand that.
|
| Because DTCC requires cash collateral while the transaction
| is settled whether the transaction happens in a margin
| account or a cash account. There's no distinction from
| DTCC's perspective. DTCC (reportedly) increased the
| collateral on $GME transactions to 100% of the transaction
| price compared to the typical 1-3% of the price.
| bmitc wrote:
| Thanks for that information. I didn't know that or about
| DTCC. Is raising the collateral on transactions like that
| typical?
| gruez wrote:
| Yes https://twitter.com/kralctrebor/status/13549526861652
| 25478
| triceratops wrote:
| Maybe Citadel knew about RH's difficulties and timed their
| moves accordingly. For smart person who knows how RH's
| model works (I am neither, btw), which I'm sure Citadel
| employs many of, it wouldn't have been hard to predict.
| alasdair_ wrote:
| Robinhood sends their order flow to Citadel.
|
| Citadel would know before anybody else in the market that
| the massive number of buy orders from RH had just gone to
| zero. They would also know that sell orders were still
| coming in.
|
| This would allow Citadel to profit massively on the backs
| of the RH customers even if there was no direct
| collusion.
|
| The thing is, RH isn't stupid. They knew that Citadel
| (their biggest customer) would see that orders went to
| zero before anyone else and could move accordingly. RH
| didn't need to explicitly warn Citadel in advance - the
| very nature of their relationship meant that they would
| be told in advance.
| tptacek wrote:
| This doesn't make much sense. One way Citadel could have
| known there was a massive number of buy orders would be
| to simply read WSB.
| MattGaiser wrote:
| Because anyone buying right away after funding an account
| or selling the same day as buying is buying on margin.
| Margin is used to make a lot of the "instant" stuff happen.
| True cash accounts make them difficult to use for the day
| trading these people like to do.
|
| https://finance.zacks.com/tax-rules-use-proceeds-stock-
| sales...
|
| https://www.fidelity.com/learning-center/trading-
| investing/t...
| gruez wrote:
| Also they can't use customer funds to fund the deposit,
| it has to be out of _their_ pocket.
|
| https://finance.yahoo.com/video/heres-why-robinhood-
| restrict...
|
| >And we just can't afford-- well, we're not a clearing
| firm, but 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.
| bmitc wrote:
| Right. I get that. But if buying on margin is the
| problem, block buying on margin. Why block buying when
| people have the cash already settled in their account as
| well?
|
| Edit: Answered in another chain.
|
| https://news.ycombinator.com/item?id=25971718
| fractionalhare wrote:
| Do you actually know of a specific firm that kept its short
| position open through to Thursday? They would have had to
| survive through Tuesday and Wednesday, which seems unlikely if
| they were one of the original sub-$10 shorts.
| Simulacra wrote:
| Forced arbitration has always felt grossly unfair, but for the
| sake of argument, I'll consider the contrapositive. A company
| that is in a highly litigious industry may feel that lawsuits
| would eat up valuable time and resources, and that those lawsuits
| are not always filed in good faith. Perhaps the industry or
| subject matter is complex, and not easily understood by juries,
| courts, etc. From a business perspective forced arbitration makes
| perfect sense: It limits exposure, limits judgement amounts, and
| perhaps is more predictable than trials.
|
| All that sounds good from the business perspective, but my
| problem has always been that the outcomes seem tilted grossly in
| favor of the company. Like Human Resources, it's there for the
| company, not the employee/consumer, and its the companies that
| have to pay for the arbitration. Banning them does not seem like
| a long term solution, although I support it, so I'm curious what
| alternatives may exist that could accomplish both.
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