[HN Gopher] It's Time for Real Time Settlement
___________________________________________________________________
It's Time for Real Time Settlement
Author : marc__1
Score : 133 points
Date : 2021-02-02 19:32 UTC (3 hours ago)
(HTM) web link (blog.robinhood.com)
(TXT) w3m dump (blog.robinhood.com)
| amluto wrote:
| I have seen on Twitter that Robinhood was unable to use customer
| funds to satisfy clearing deposit requirements, but I couldn't
| find an actual authoritative source on this. Is this correct? It
| seems to me that, to secure a $300 purchase buy a customer,
| Robinhood ought to be able to use that customer's $300.
| usefulcat wrote:
| Consider the following sequence of events:
|
| 1) Custom initiates $300 purchase of some stock.
|
| 2) RH sends customer's $300 to counterparty.
|
| 3) After receiving the $300 and before delivering stock to RH,
| counterparty goes belly up.
|
| Forbidding RH to use customer funds in that manner prevents
| that race condition.
| TopInvestor wrote:
| RH is giving a loan - these are margin accounts. That is why it
| had to raise $ billions.
| swampthing wrote:
| They do have margin accounts, but as I understand it, that
| was not what caused these deposit requirements to shoot up.
| I.e. the margin accounts were not what caused the problem.
| swampthing wrote:
| They are legally prohibited from using the customer's funds for
| the deposit requirements.
| hinkley wrote:
| Would it make sense for securities places to charge each other
| interest for unsettled trades? You'd make more profit then if you
| could settle your trades faster, making it more carrot than
| stick.
|
| Something like the overnight rate banks charge each.
| [deleted]
| u678u wrote:
| So new entrant joins industry, ruins pricing by giving product
| away for free, nearly goes under because it over extended itself,
| and then blames the rules. Yeah I'm sure everyone else wants to
| do what RH says.
| JumpCrisscross wrote:
| > _new entrant joins industry, ruins pricing by giving product
| away for free, nearly goes under because it over extended
| itself, and then blames the rules_
|
| Credit where it's due: ripping off the commission band-aid was
| overdue, and Robinhood single handedly caused it. And abridging
| T+2 is probably a good idea. (Though real-time settlement and
| clearing is probably not.)
|
| What's missing in their communications is the _mea culpa_. We
| got into this to make big changes. We made them. One thing we
| overlooked was this weird bit of the financial system. Here is
| why we missed it, here is why it is obscure, and here are our
| _tabula rasa_ suggestions on how it could be improved.
| CyberRabbi wrote:
| > When people invest, they're placing their hopes and dreams for
| the future in our financial system. We can't let them down.
|
| This is probably generally true but that investment behavior is
| not what drove their clearinghouse failure. I wish they would
| quit it with the fluffy rhetoric. Why doesn't Robinhood
| understand that we want straight answers from them.
| mikegreen wrote:
| But "When people invest" - This isn't investment behavior. This
| is speculation and most likely simple addiction to gambling
| behavior they drive and incent people to do.
| krick wrote:
| I'm really ignorant about all this securities trading stuff. Can
| somebody enlighten me to what this change actually means? Or
| maybe point to some "beginners guide", after which I'd understand
| what he is talking about?
| Animats wrote:
| Robinhood could start by arranging that when you withdraw funds
| from Robinhood, you get them in real time. Minutes. Naw. They
| settle cash on T+1.[1] Still, that beats PayPal.
|
| [1]
| https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...
| imcoconut wrote:
| This is robinhood's fault.
|
| He's not wrong that instant (or same day) settlement would be
| better than T+2, but there were plenty of other brokers that did
| not restrict trading. This was a liquidity issue for robinhood.
| This is a risk you run being a "cool startup that moves fast and
| breaks things" in the arena of securities trading. Additionally,
| Some of the bugs they've experienced are absurd in the context of
| a broker that potentially houses people's entire liquid net
| worth, including a bug that reversed the direction of trades -
| "oh you meant to _sell_ those shares? whoops! "[0].
|
| Why choose robinhood when the alternatives include some of the
| most well capitalized institutions in the world, eg JP Morgan or
| Bank of America Merrill Lynch - they have literal trillions in
| assets each and neither has these issues. I appreciate that
| robinhood pioneered zero commission trades, but that has been
| largely adopted by the industry at this point. From my standpoint
| I only see risks versus their peers and precisely zero benefits.
|
| I implore everyone here to stay far away from robinhood.
|
| [0] https://www.nytimes.com/2021/02/02/technology/robinhood-
| ceo-...
| paxys wrote:
| > Why choose robinhood when the alternatives include some of
| the most well capitalized institutions in the world
|
| The biggest reason is that none of those world class
| institutions can actually build a functioning smartphone app
| gonational wrote:
| I've been using the TD Ameritrade app (formerly
| "thinkorswim") since 2008, on an iPhone 3G, without issue.
| dharmab wrote:
| I've been mostly happy with the Charles Schwab app. They also
| don't charge any fees.
| whimsicalism wrote:
| I have not been. It seems to constantly forget my
| fingerprint.
|
| Nor does it have a particularly nice UI, unlike Robinhood.
| That might be a plus (doesn't gamify it) but it is an
| inferior UI.
| ssharp wrote:
| When the app can't do what it's supposed to do (buy/sell
| securities), the nicer interface is pointless.
| biswaroop wrote:
| I've used Fidelity for many years: the app is excellent.
| unethical_ban wrote:
| My first thought logging into their mobile app and desktop
| was "Jesus Christ this is terrible". Maybe it is
| functional, but RH knocks UI out of the park.
| fossuser wrote:
| I use Fidelity - the app sucks.
|
| It may be 'excellent' relative to competitors in "shitty
| old financial company app" space, but it is in no way
| excellent compared to a high quality phone app.
|
| Robinhood is successful because their software is actually
| good. My bullish case for them would be them leveraging
| this capability as a way in to becoming a Fidelity sized
| financial competitor.
|
| Their CEO's inability to honestly communicate with the
| public is hurting them though. He should have lead with
| their liquidity clearing house issues and directly
| addressed the apparent conflict of interest. He appears to
| either be unwilling or incapable of doing this.
|
| They've now after the fact explained some of the clearing
| house issues, but they still act as if they don't
| understand the conflict of interest question. Just address
| it directly.
|
| When Elon asked him about it he should have said something
| like, "I can see why people would think we'd be under
| pressure from the funds that buy our order flow, but we
| live and die by our retail reputation and would not risk
| that to illegally coordinate with these funds. We'd go
| direct to our retail customers first. That said, we were
| not asked to do what we did or pressured by them, we had to
| make choices on the fly to stay liquid and in that
| craziness I failed to communicate what we were doing in
| real time to our users - that was my failure".
|
| Instead he mostly dodged the substantive question and came
| across as full of shit (only addressing the narrow aspects
| not really in dispute). I think this could be the truth,
| but when paired with him lying on TV about their liquidity
| issues it leads me to distrust him, and by extension the
| company.
|
| I suspect the reality is something in the middle,
| considering what RH's customers (the funds) would want,
| fear of mentioning their liquidity issue causing a run, and
| the clearing house concern. He handled this poorly.
| stouset wrote:
| Vanguard's app works fine for me.
|
| Sure it's not gamified or meme-ready but maybe "investing
| your life savings" as a category shouldn't be?
| JohnJamesRambo wrote:
| They need a Game Over screen for when you are liquidated.
| kbar13 wrote:
| i have a vanguard account with most of my investments, with
| like 10% in robinhood for gambling.
|
| the way i think about it is vanguard works fine (theres
| some bugs but not end of the world). but it is not
| optimized for timed trades. it works well enough for me to
| put in a big chunk of money on a recurring basis or
| liquidate funds for use elsewhere.
|
| robinhood allows me to easily trade off of market emotion
| or do options trading.
|
| they serve two very different markets. if i tried to trade
| options using vanguard i'd probably want to throw my phone
| against the wall.
| adjkant wrote:
| Merrill Edge is ugly but quite functional and featured on
| iOS. Same with Schwab. I don't need the "millennial" UI
| experience when moving thousands of dollars. And that's not
| to say it doesn't have value - I love it for many things. I'm
| a happy customer of Warby Parker, Brooklinen, Joybird, and
| Lemonade to note a few, all of which offer slick UI's and a
| bit of markup for a "just works, simply" experience. I much
| prefer ugly/clunky yet working correctly and not fucking me
| over randomly with bugs when it comes to major financial
| stakes.
| paxys wrote:
| You don't need a good UI experience the same way my dad
| doesn't need a "fancy website thing" because he can easily
| call his stock broker to make the trade. But if these
| companies don't evolve they are going to keep losing
| younger millennials and beyond to Robinhood as time goes
| on.
| bumby wrote:
| From your link:
|
| _"That same week, Robinhood released software that erroneously
| reversed the direction of customer trades, which meant that a
| bet on a stock going up was turned into a bet that it would go
| down. Mr. Tenev oversaw technology.
|
| Technological issues continued piling up. In 2019, customers
| discovered that Robinhood's software accidentally allowed them
| to borrow almost infinite amounts of money to multiply their
| stock bets. Last March, as the pandemic hit the United States
| and the stock market gyrated wildly, Robinhood's app seized up
| for almost two days, leading some customers to lose more than
| $1 million."_
|
| I like disruptive businesses. But sometimes I think SV
| fetishizes the "move fast and break things" mantra without
| understanding that it may sound cool without appropriately
| acknowledging the risk it brings.
|
| I'm sometimes labeled as a codger but it makes me cringe when
| people espouse that attitude on projects that can ruin
| someone's livelihood let alone on safety critical code that can
| end someone's life
| [deleted]
| Negitivefrags wrote:
| > This was a liquidity issue for robinhood.
|
| The only reason robinhood has liquidity issues is because of
| T+2 settlement.
|
| I mean why should a broker app need to have liquidity at all.
| Why restrict the ability to make this type of business to
| companies with a lot of capital.
| Miner49er wrote:
| I think this is jumping the gun. Robinhood takes some fault
| yes, but why are people ignoring the DTCC/clearinghouses role
| in this?
|
| It seems they raised deposit requirements potentially more than
| was standard. This needs to be investigated.
|
| WeBull's CEO claimed their clearinghouse told them to stop
| selling these securities (no mention of deposit requirements).
| If they really weren't even given an option to deposit more,
| that seems to me to be an abuse of power by the clearinghouse.
|
| Finally, was the DTCC not having the long side cover the risk
| on the short side? It seems to me, the vast majority of the
| risk was on the shorts. The short side seemed to be made up of
| mostly large hedge funds, so if one went down, it would have
| been extremely difficult for the DTCC to front the cash on all
| of their trades, and of course shorting has infinite risk. The
| long side was finite, was distributed among multiple brokers
| and then even more distributed among retail investors. It seems
| like the risk was low there.
| rdsubhas wrote:
| People ignore the clearing house because they don't see it,
| they don't interact with it, and they don't have a customer
| contract with it. For all their practical purposes, the
| clearing house doesn't exist.
|
| It's obvious from RHs statement that they are stuck between
| the DTCC and customers. They are not willing to call out the
| DTCC because they are fully at the mercy of it. So they are
| trying their best to be positive and forward looking, trying
| to offer help to rally around something totally outside their
| control (real time settlements).
| JumpCrisscross wrote:
| > _they raised deposit requirements potentially more than was
| standard_
|
| What is your source for this?
|
| DTCC collateral requirements are calculated using, more or
| less, a fixed, predictable formula. And the DTCC isn't the
| ultimate creditor in these arrangements. They are drawing on
| lines of credit from banks, who are ultimately taking the
| credit risk of the collateral being insufficient for
| settlement.
| Miner49er wrote:
| Not completely, they have the right to add charges. Take a
| look at this tweet:
|
| https://mobile.twitter.com/KralcTrebor/status/1355175395642
| 0...
|
| It seems that they used this right by the fact that
| Robinhood was able to negotiate their deposit [0]. The DTCC
| demanded $3 billion. Robinhood negotiated down to $1.4
| billion. If done by the formula, how is this possible?
|
| [0]: https://www.cnbc.com/2021/02/01/elon-musk-on-
| clubhouse-robin...
| [deleted]
| JumpCrisscross wrote:
| > _The DTCC demanded $3 billion. Robinhood negotiated
| down to $1.4 billion. If done by the formula, how is this
| possible?_
|
| Netting out trades.
| tomp wrote:
| Which is such a basic idea that it's impossible that they
| didn't come up with it themselves and had to be schooled
| by Vlad.
|
| It's like the "smart guy" having an insightful moment in
| a sci-fi movie: "I got it, we'll use _gravity assist_!"
| Astrophysics 101.
| dataflow wrote:
| > DTCC collateral requirements are calculated using, more
| or less, a fixed, predictable formula.
|
| "Less" might be accurate, given there's apparently a
| subjective multiplier.
| https://www.youtube.com/watch?v=2M7X2dsW_Xw&t=5m25s
| kridsdale1 wrote:
| Vlad said live on air (in Clubhouse) in conversation with
| Elon Musk on Sunday that the clearinghouse increased their
| requirements from (IIRC) 30% to 100%, and that the formula
| for calculating that was "not transparent" and had a
| component that was "a multiplier based on their opinion".
|
| RH negotiated with them all Thursday last week and reduced
| the required payment from $3B to ~$0.7B. So it sure seems
| like the DTCC made an arbitrary decision to jack up
| systemic safety cushion that resulted in the RH clients
| turning very sour.
| JumpCrisscross wrote:
| > _had a component that was "a multiplier based on their
| opinion"_
|
| I'll chalk this up to colloquialism. The DTCC has very
| little discretion in what they do. That's why they're
| trusted to do it.
|
| The "opinion" component could be a reference to their
| line of credit banks, who adjust the rates _they_ charge
| the DTCC based on their varied risk models. There is a
| valid argument that there isn 't as much transparency in
| that layer as there could be. But that isn't relevant to
| this case.
|
| Any off-the-shelf collateral cost estimation tool should
| have told you, given GME's realized volatility in the
| week prior to the fiasco, that it was a high clearing
| risk. If the CEO is getting blindsided by the DTCC at
| 3AM, it's a oversight of internal controls.
|
| > _RH negotiated with them all Thursday last week and
| reduced the required payment from $3B to ~$0.7B_
|
| Negotiating collateral requirements involves netting out
| trades and delaying settlement on some trades and
| accelerating settlement on others. It does not involve
| recomputing collateral rules. (The DTCC can't recompute
| collateral rules for one member over another.)
| totalZero wrote:
| DTCC has higher requirements for concentrated positions
| than for other uncleared CNS positions. Couple this with
| Robinhood laying out its own capital to fund margin
| trades and Robinhood Instant trades, and you've got some
| pretty aggressive capital commitments.
| (PROCEDURE XV) 288 II. if the absolute value
| of the largest non-index position in the portfolio
| represents more than 30 percent of the value of the
| entire portfolio (the "concentration threshold"),
| an amount determined by multiplying the gross
| market value of such position by a percentage designated
| by the Corporation, which percentage shall be not
| less than 10 percent. Such percentage shall be
| determined by selecting the largest of the 1st and
| 99th percentiles of three-day returns of a composite set
| of equities, using a look-back period of not less
| than 10 years that includes a one-year stress
| period,2 and then rounding the result up to the nearest
| whole percentage. The concentration threshold
| would be no more than 30 percent, and would be
| determined by the Corporation from time to time and
| calibrated based on the portfolio's backtesting
| results during a time period of not less than the
| previous 12 months.
|
| Also, the fact that the man running Robinhood gave out
| material nonpublic information on a a private podcast
| with a billionaire says a lot about his judgment, in my
| opinion.
| robocat wrote:
| " Mr. Denier said that Apex was told by DTCC that
| collateral requirements had been raised on transactions for
| GameStop to near 100%." -
| https://www.wsj.com/articles/gamestop-trading-
| restrictions-b...
| NovemberWhiskey wrote:
| ... and now you will presumably give us an example of a
| case similar to GME where collateral requirements were
| not raised so we can see that the treatment was not
| standard?
| alwayseasy wrote:
| Look to similar trades where concentration was as high as
| for GME.
| amznthrwaway wrote:
| The deposit requirements were set exactly the way they're
| always set.
|
| RH's main issue was that they had tons of customers with
| margin accounts, but they didn't have enough cash to serve as
| collateral on that margin, when it was used to buy something
| risky.
|
| It's just a poorly capitalized, poorly run brokerage with
| shitty risk controls, but a very shiny and easy to use UI.
| nprz wrote:
| Zero commission trade is actually bullshit anyway. You end up
| losing more from inferior execution time than you would if you
| just paid the $5 per trade. Robin Hood also lied to users about
| this and ended up paying a $65 million fine[0].
|
| [0]https://www.sec.gov/news/press-release/2020-321
| cortesoft wrote:
| Whether you would be better off with the $5 trade or not is
| dependent on how many shares you trade at a time.
|
| It wouldn't have been an issue if Robinhood had been upfront
| about their pricing. They still would have been a good deal
| for many retail investors, but they instead chose to lie.
| wtf_is_up wrote:
| How is this possible when I use limit orders? (not a
| robinhood user btw, but pretend I am)
| justinsaccount wrote:
| from screenshots I have seen lately, I'd bet that at least
| 20% of RH users have no idea what a limit order is.
| [deleted]
| ralph84 wrote:
| Say the national best bid and offer (NBBO) is: Bid: $10.45
| Ask: $10.55
|
| You place a limit buy order at $10.55 for 100 shares.
|
| $0 commission broker that sells order flow: Your order is
| routed to the market maker buying your broker's order flow.
| They sell you the 100 shares for $10.55 since it's within
| your limit and within the NBBO spread.
|
| $5 commission broker: Your broker attempts to price improve
| by searching multiple liquidity sources and gets a hit at
| the NBBO midpoint: $10.50.
|
| In both cases you paid $5 for the trade.
| kasey_junk wrote:
| This is not at all how NBBO works. Effectively all retail
| brokers sell order flow and if they dont they still dont
| have any obligation to improve your price beyond NBBO.
| ralph84 wrote:
| > This is not at all how NBBO works
|
| Open to corrections
|
| > they still dont have any obligation to improve your
| price beyond NBBO
|
| But those that do price improvement use it as a marketing
| differentiator:
|
| https://www.fidelity.com/learning-center/tools-
| demos/trading...
|
| https://investor.vanguard.com/investing/online-
| trading/order...
|
| https://www.schwab.com/execution-quality
|
| https://www.tdameritrade.com/tools-and-platforms/order-
| execu...
|
| https://www1.interactivebrokers.com/en/index.php?f=47202#
| bes...
| TopInvestor wrote:
| The general recommendation is never use limit orders - do
| not reveal your intention to the other side.
| kasey_junk wrote:
| This is terrible advice. if your slippage risk is such
| that you aren't protected by NBBO you have absolutely no
| business on a retail broker of any sort. Meanwhile limit
| orders minimizes the most likely risk a retail trader has
| to overcome. Either you don't understand the advice you
| were given, you were duped or you are trying to be
| duplicitous.
|
| In any case, terrible advice to be repeating in the
| context of retail trades.
| dragonwriter wrote:
| I've seen recommendations to never use _market_ orders; I
| 've never seen one against _limit_ orders.
| satellite2 wrote:
| If, by the time your order reaches the book, there is a
| better price than your limit, you are entitled to it.
|
| That is the best execution obligations of your broker.
|
| In RH case, their intermediary bought at the better price
| and resold it to you at your ask, keeping the difference.
| atombender wrote:
| "Not charging $5 per trade" implies that other brokerages
| such as Schwab, Fidelity, and TD Ameritrade -- which haven't
| been penalized by the SEC -- suddenly offered poorer order
| execution when they dropped their commissions, which by all
| accounts they did not. They all experienced declines in
| revenue.
|
| What Robinhood did was to lie about their execution. They
| claimed their trade prices were as low as other brokerages,
| while in fact being much worse. SEC penalized them for (1)
| intentionally misleading customers and, in the words of the
| press release, (2) "failing to satisfy its duty to seek the
| best reasonably available terms to execute customer orders".
|
| Unlike Robinhood, Schwab, Fidelity, and TDA all have popular
| real-time trading platforms where order execution quality is
| crucial.
| kasey_junk wrote:
| Lol. You cannot judge your order execution quality as a
| retail customer. It takes the SEC years of investigation to
| do that. Its certainly not something retail brokers compete
| on.
|
| Robinhood lied and should be punished but they were
| penalized for doing so before other brokers had gone to $0.
| It remains to be seen what happens at the other brokers now
| that they are free.
| totalZero wrote:
| > Lol. You cannot judge your order execution quality as a
| retail customer.
|
| If you've traded the same listed securities frequently on
| various platforms, you certainly can. In terms of speed,
| PFOF systems can hang on to limit orders that are
| marketable (ie they cross NBBO), technically not printing
| them outside the confines but taking their sweet time to
| make a decision about whether to cross the order or post
| it to an exchange. And once it goes to an exchange, you
| can also get a feel for how much of the displayed bid or
| offer you get on one platform versus another.
| humanlion87 wrote:
| If companies like Robinhood don't come along, how do you think
| disruption in the financial market will happen? If we always go
| back to the existing players, rate of innovation will be so
| slow (especially in the financial market). And it's obvious
| that startups will not have the same amount of assets that
| century old companies have. But JPMorgan or BofA did not earn
| their trillions overnight. In fact, we can even say they have
| screwed over more people than Robinhood has.
|
| I am not trying to say what Robinhood did was correct or that
| they have not done any mistakes. I am just saying that I am
| glad that companies like Robinhood exist because otherwise the
| entrenched players would have never taken any steps to
| innovate.
| jabbany wrote:
| I don't think that the OP is arguing for "always" sticking to
| entrenched players, but rather for people to face the reality
| that the agility of startups come with drawbacks in their
| service (even though it's often not apparent).
|
| It all comes down to making informed decisions. If you're
| just using RH for "playing around" with some surplus money,
| this lack of liquidity shouldn't be as important for you (as
| compared to, e.g., the ease of use, or low fees...). However,
| if you're using RH in a "serious" capacity, this
| (reliability) should definitely be something to seriously
| consider, since you may not have the guarantees that you can
| take for granted with traditional players.
|
| The true problem with the RH situation is the lack of
| transparency throughout. It really does no good (and comes
| off as very "slimy") if third parties have to expose their
| business model or why they're having issues. A little
| transparency would have gone a long way for people to be
| sympathetic to the startup. But then again, I guess that
| harms the "magic" factor of a startup.
| tmotwu wrote:
| I agree with your sentiment, but for people who have used RH
| for a while, this is basically par for the course as far as
| RH support/PR goes. I'm surprised people haven't dumped them
| in the past for their reliability issues, and they shouldn't
| get a pass for this event either. For instance, Amazon wasn't
| the first e-commerce or compute resource provider either.
| Their competency and dedication to customers have put them
| ten steps ahead.
| totalZero wrote:
| Is an obsession with "disruption" over "improvement" wise for
| a system that moves hundreds of billions of dollars every
| day?
|
| We were on T+3 a few years ago. Now we're on T+2. That wasn't
| the result of some whiny blog post, it was the result of
| gradual and careful operational improvements. There's a lot
| of work that goes on in the back and middle offices of those
| century-old companies.
| stinky613 wrote:
| Completely agree; Robinhood seems to give us a new reason to
| distrust them each week.
|
| The guy who allowed his service to store passwords as
| plaintext[1] says "There is no reason why the greatest
| financial system the world has ever seen cannot settle trades
| in real time." -- pardon my fucking skepticism of the deep
| technical knowledge he must possess to make such a bold
| assertion
|
| [1] https://techcrunch.com/2019/07/24/robinhood-stored-
| passwords...
| notsureaboutpg wrote:
| Yeah, you can open a Fidelity account with no minimum and get
| commission free trades and their app is great.
|
| What advantage does Robinhood have in comparison? Outages and
| low liquidity?
| AmericanChopper wrote:
| I agree that this is robinhoods fault, and that they have been
| deceptive in their PR about this, and that their UX workflows
| are misleading about what's actually happening...
|
| But, plenty of other brokers had the same issue. Including
| Merrill for instance. I would say that the more concerning
| issue that this has highlighted is how this part of the system
| gives large institutions greater access to markets than retail
| investors get. Addressing a systemic flaw like this seems like
| the best possible thing that could come out of this
| controversy.
| pokot0 wrote:
| They are diverting the attention from their core problem: lack
| of transparency. I had a RH account for years and I didn't know
| it was a margin account (be sure: I did not signup for their
| "margin" service). All RH account are margin accounts even if
| they feel like cash accounts (but with T+0 settlement). This is
| what triggered their cash problems and what drives people crazy
| now: a user feels they gave them 100$ to buy 100$ of stocks,
| while what happens is that you get a loan and they buy some
| form of stock in their name while committing to you for the
| value of one stock. Robinhood is the facebook of finance. I
| moved my money out of them.
| astrange wrote:
| This has nothing to do with being a margin account, it's DTCC
| requirements related to wanting to buy the same stock
| everyone else at the same broker also wants to buy.
| pokot0 wrote:
| My understanding is that it does. One example (there's more
| like the instant deposit): when you buy a stock with money
| from another sale not yet settled, you are basically using
| margin (a loan) and thus RH have cash requirements which
| are a % of the cost of the trade to be settled.
|
| If you don't allow that, and only let people trade on a
| cash basis after the trades have been settled, you
| effectively have 100% of the money you need to settle the
| trades you closed.
| kasey_junk wrote:
| Thats true but do any brokers do that in their apps?
| Neither my Vanguard nor my Fidelity UI make it obvious
| when i'm using settled vs non-settled funds.
| tristanj wrote:
| It's a good thing that DTCC aware of this issue and is looking
| into accelerating this to T+1 (followed by T+0) using blockchain
| and distributed ledgers.
|
| https://www.finextra.com/finextra-downloads/newsdocs/embraci...
|
| Edit: No clue why this is downvoted.
| vmchale wrote:
| Why is blockchain involved?
| tristanj wrote:
| It's a fundamentally better system. It allows all parties to
| know who owns what assets with extremely high statistical
| certainty.
| scubbo wrote:
| To get hype to get funding.
| sam_lowry_ wrote:
| How come I know for sure this will fail?
| silverfox17 wrote:
| Probably blockchain
| choeger wrote:
| They could mitigate by using a quantity of ML and mix in
| some good old-fashioned Big Data.
|
| As a side note, we need a defined unit for the quantity of
| hiptech in a software project. I propose one AI (= 100
| Microservices).
| LatteLazy wrote:
| Don't forget the eye-of-newt... ;)
| MattGaiser wrote:
| Better add in some cloud just to be sure and at least one
| IoT developer for premise security.
| LatteLazy wrote:
| It is. The EU has a road map to get it down to T+0 (same day) I
| believe. That's not real time but its a start...
| throw0101a wrote:
| [citation needed]
|
| Can you post a link? I know they moved from T+3 to T+2 in 2014,
| but doing a quick search doesn't reveal any T+0.
| tonfa wrote:
| It's probably the right tradeoff though? More possibility of
| internal netting for the broker with batching, sounds more
| efficient.
| LatteLazy wrote:
| Yeah, I think end of day would be sufficient at least for
| now.
|
| Maybe someone with more knowledge of the situation will
| correct me though. I think there can be counterparty risk
| issues (eg during the 2008 crash) that are removed by
| immediate clearing/settlement.
| clarkmoody wrote:
| Side note: cryptocurrency exchanges perform brokerage,
| settlement, and clearing continuously and in real-time.
| JumpCrisscross wrote:
| > _cryptocurrency exchanges perform brokerage, settlement, and
| clearing continuously and in real-time_
|
| If I sell my Bitcoin on Coinbase, I instantly get the funds in
| my checking account? Because that's what real-time settlement
| means.
|
| Blockchains dramatically simplify the clearing part of the
| equation. That simplification comes with costs, however.
| psychlops wrote:
| Real-time settlement means that if you sell your bitcoin on
| coinbase, then the currency you bought (say Dollars) is yours
| to invest fully or withdraw into another account (say your
| checking account).
| psychlops wrote:
| Came here to say this. Crypto exchanges have led the way in
| real-time clearing and in 24 hour trading.
|
| Both of which are better for the consumer.
| satellite2 wrote:
| I'm going to simplify a bit, but there is a big difference in
| clearing crypto vs cash.
|
| Clearing crypto doesn't require debt because your broker
| directly sends the TX on chain.
|
| Doing the same with cash would require sending trucks of cash
| to their various clients banks throughout the day and would be
| prohibitely expensive.
|
| That's why clearing was invented. I.e. having the bigger banks
| lending to the smaller and allowing to delay the actual
| exchange.
| azifali wrote:
| I am not quite sure if everyone else is ready for this.
| epa wrote:
| This post is equivalent to an Op Ed saying World Peace is what
| society needs. Vlad, we understand you are trying to salvage some
| of the PR mess that was made by placing the blame on others. This
| post is lacking substance on next steps and how Robin Hood would
| like to implement this. While it is not what your Company does,
| what is your suggestion?
| SpicyLemonZest wrote:
| The implicit call is that the SEC should push for it and
| financial institutions should accept the push. I'm not sure
| there's much to say beyond that; the basic technological
| principles behind getting real-time information from the NYSE
| to DTCC are simple and well-understood. The industry just has
| to invest the time and money required to make it happen.
| ssivark wrote:
| Out of curiosity, are there any reasons to prefer slower
| settlement? (Since this seems like a no-brainer, but clearly
| hasn't happened already)
| dan-robertson wrote:
| Some ability to net--that is to buy at one price, sell at
| another, and only settle the difference--is probably desirable
| freeone3000 wrote:
| Sure, but end of day settlement (like is practiced on TSX!)
| has all of the reasonable benefits of T+2 settlement, while
| still taking place in an understandable time frame.
| throw0101a wrote:
| If TSX = Toronto Stock eXchange, I do not think that is
| correct:
|
| * https://www.tsx.com/news?id=533&year=2017
|
| In Canada it's done by CDS Clearing and Depository Services
| Inc. (CDS) and is currently T+2 just like in the EU (2014)
| and US (2017).
|
| A 2015 whitepaper discussing the (then) proposed change:
|
| * PDF: https://www.cds.ca/resource/en/174
| KaiserPro wrote:
| yes, because there are two parts to the trade:
|
| 1) the contract
|
| 2) the paying of the money
|
| There are ancillary bits as well like unwinding of mistakes.
|
| The problem is this, moving money fast is hard. It can be done,
| but its far cheaper to settle up at the end of the day, when
| the total inflow/outflow is calculated.
|
| But crucially there isn't enough liquid capital to service this
| level of actual transaction.
| tomatocracy wrote:
| There are reasons to prefer settlement is not instantaneous -
| eg it makes fat finger trades easier to unwind. There are also
| probably some special cases like creation/destruction of ETF
| shares, ADRs, IPO greenshoe etc which take a bit longer to work
| through.
|
| But I think the main reason for these changes being slow to
| occur is because noone wanted to break the system in the
| process - the settlement process for share trades in the US
| is/was viewed as quite fragile due to the way it had evolved
| over time.
| atombender wrote:
| Adding support for fast settlement doesn't necessarily mean
| removing support for slow settlement. The customer placing an
| order could simply mark trades as "fast" or "slow".
| Barrin92 wrote:
| I'd say the first reason is staring us right into the face, it
| disincentivizes actors on the market from engaging in exactly
| the kind of nonsense that is divorced from fundamentals we've
| seen over the last few weeks playing out on Robinhood.
| Miner49er wrote:
| Was that not just the market correcting itself? The stock was
| extremely over shorted, and the price rose to shake out the
| shorts. I think short squeezes need to be allowed to happen
| properly. If we don't want that, we would need to limit short
| selling.
| tylerhou wrote:
| Why do you think the stock was "over shorted" apart from
| the fact that short interest is generally not that high?
|
| Or -- what do you think are the bad consequences of "over
| shorting?"
| Miner49er wrote:
| > Why do you think the stock was "over shorted" apart
| from the fact that short interest is generally not that
| high?
|
| It was the highest shorted stock on the market. That is
| "generally not that high"?
|
| I think the fact that retail investors were able to cause
| a short squeeze on it, that cost shorts many billions of
| dollars, is an indication that it was over shorted.
|
| > Or -- what do you think are the bad consequences of
| "over shorting?"
|
| There needs to be balance to everything; one of the
| naturally occurring risks of shorting is a short squeeze.
| Messing with that would ruin the risk/reward balance of
| shorting. Shorting creates more longs, and therefore
| drives the share price down. The risk of a short squeeze
| is a good way to prevent people from opening an extremely
| high number of shorts, and artificially driving the price
| down this way.
| Barrin92 wrote:
| the market is probably very soon going to return Gamestop
| to its actually reasonable evaluation, so the market didn't
| change.
|
| What changed was Citadel (who is actually Robinhood's
| customer, not the retail investors) and Silver Lake making
| a bunch of money off retail investors while a lot of people
| who bought in at the top are going to be fleeced.
|
| No value was created in this process or valuable
| information exchanged. It's basically market-makers and
| other hedge funds benefiting from volatility caused by a
| stupid hedge fund and retail investors going crazy. And the
| reason Robinhood wants all that real-time trade so bad is
| because Citadel pays them for order flow, that is their
| actual business, not you trading on their app.
| Miner49er wrote:
| I don't agree. GME will end up higher once it settles,
| because there's less long positions now, since there is
| less short positions.
| topspin wrote:
| What are the incentives?
|
| T+0 would enable the Robinhoods of the world. Are the big players
| and the regulators they've captured and the legislators they've
| paid for interested in enabling Robinhood et al. after the events
| of last week?
|
| DOA.
| hervature wrote:
| You think T+2 is a form of regulatory capture? Any type of
| regulation that makes it easier for retail to lose their money
| would be welcomed.
|
| When things were delivered by horse, it was T+14, we are now
| down to T+2 for stocks and bonds (mostly anything related to
| private industry), T+1 for options and government stuff, and
| T+0 for futures. Everything is pointing at eventually
| everything being T+0.
|
| I'll repeat, Robinhoods are welcome, especially if they do dumb
| things like this GME debacle. I expect the big players to lobby
| for relaxed margin requirements so that they can let retail
| lose their shirts like the 1930's while they profit by taking
| the smarter side of trades and insulate themselves by letting
| the Robinhoods fail in case of market failures.
| JumpCrisscross wrote:
| Real time equities settlement is a terrible idea. It sounds
| great. But it breaks a lot of good stuff. I'm surprised the CEO
| of a brokerage is advocating for it. (The article is a bit loose
| with the terms settlement and clearing. Again, surprising from
| the CEO of a company that almost got taken out by internal
| clearing failures.)
|
| If you only think about the American stock market from the
| perspective of a domestic retail day trader, sure, real-time
| clearing sounds easy enough. When you expand it to institutions,
| real-time settlement means having to warehouse all the funds they
| _might_ need to trade with in a day with their prime brokers as
| cash. Not Treasuries. Cash. Because their broker has to be able
| to wire out that $1bn instantly. (That 's what real-time
| settlement means. Real-time payments.) For market makers, this
| effectively requires removing their buyer of last resort
| obligations since they would be practically capped by their cash
| on hand. There are additional complexities when one considers
| foreign investors. Options exercises and expirations. ETFs.
| Futures.
|
| Historically, the loudest advocates for shortening settlement
| times are global money centre banks. A switch to real-time
| settlement and clearing would require every market participant
| either (a) have flawless payment rails to every other market
| participant or (b) put all their cash with a global bank who can
| provide that guarantee.
|
| End-of-day or overnight clearing, on the other hand, isn't too
| much to ask for. It preserves the robustness and extensibility of
| delayed settlement. But it removes a few days of collateral
| requirements. Pushing for EOD clearing would be a smarter play
| for Robinhood, from a government relations perspective. (If this
| is solely PR then whatever.)
| im3w1l wrote:
| > When you expand it to institutions, real-time settlement
| means having to warehouse all the funds they might need to
| trade with in a day with their prime brokers as cash. Not
| Treasuries. Cash. Because their broker has to be able to wire
| out that $1bn instantly.
|
| I see two solutions here, either they sell the treasures (with
| also instant settlement) and then buy, or they could trade on
| margin backed by the securities. Or am I missing something?
| JumpCrisscross wrote:
| > _either they sell the treasures (with also instant
| settlement) and then buy, or they could trade on margin
| backed by the securities._
|
| Treasuries don't instantly settle or clear. They clear next
| day. We could discuss changing that, but it's about nine
| hundred times more complicated than overhauling the entire
| stock market.
|
| > _or they could trade on margin backed by the securities_
|
| This shifts the entire market's credit risk to the banks.
| Which banks love. (Getting away from that is why we built
| clearinghouses.)
| gher-shyu3i wrote:
| > Not Treasuries. Cash
|
| The way it should be. The quicker we do away with interest
| bearing and yielding assets, the better. It's the cause of the
| vast majority of the economic mess we're in today. We've
| literally known about this issue for thousands of years,
| interest and usury have been prohibited in Islam, Christianity,
| and Judaism. We still think we're smart and not going to be
| bitten by the dangers of interest, yet that won't happen.
| kasey_junk wrote:
| I had an interesting conversation with someone who took the
| view that all short positions were ursary. They had well
| thought out & logically reasoned from their premises
| arguments to back that up. I was really glad to hear their
| position.
|
| It filled me with dread because it would destroy our current
| agricultural industry. And as much as I recognize the
| problems with it, "a large percentage of the population
| starving rapidly" was not an outcome Id endorse because of
| injunctions from pre-industrial wisrmen.
| gher-shyu3i wrote:
| > who took the view that all short positions were ursary
|
| It's more than usury. There is usury involved because the
| "lending" the stock is done with interest. However, the
| problems don't stop there.
|
| Stock shorters, as you point out, actively bet against a
| company or industry or economic structure in general, it's
| their benefit to see a company collapse or not do well.
| This isn't how a stable society should be set up.
|
| Furthermore, stock shorting exposes three parties to risk:
| the original owner, the shorter, and the new owner. There
| is risk being created in the market that does not justify
| the value that comes out of it. In a normal stock trade,
| risk is transferred from one party to another equally.
|
| The conclusion is that shorting is a heavily immoral,
| predatory, and dangerous practice. It's quite ironic that
| when ** hits the fan, the government has to step in to
| limit certain trades or practices that we've known all
| along to be dangerous (e.g. they lower interest or ban
| shorting).
| Forge36 wrote:
| In the U.S. the Federal Reserve is already planning to support
| it. Thread discussing it from a few days ago.:
| https://news.ycombinator.com/item?id=25982987
| [deleted]
| ForHackernews wrote:
| Yeah, I'm not gonna trust the company that can't write code to
| handle leap years[0] to do real-time anything.
|
| [0]
| https://www.reddit.com/r/wallstreetbets/comments/fcoaev/and_...
| notsureaboutpg wrote:
| Not only couldn't write code to handle it but couldn't patch
| code which mishandled it after it failed publicly!!!
|
| How do you have the same leap year bug 4 years later??
| tptacek wrote:
| Is Robinhood an "industry leader"? T+0 settlement would be an
| enormous change. Is there any reason every other participant in
| the market would care what Robinhood thinks about settlement?
| They were just shown to be too small to participate fully even
| with their small slice of retail investors.
| paxys wrote:
| Can't believe I'm saying this, but there might be a good
| Blockchain-based solution out there for this.
| tristanj wrote:
| They're already looking into using Blockchain for this solution
| https://www.finextra.com/finextra-downloads/newsdocs/embraci...
| srcreigh wrote:
| I'm not entirely buying this T+2 narrative. It does not explain
| why Discord [1] and Facebook [2] were censoring WSB last week.
|
| [1]: https://www.theverge.com/2021/1/27/22253251/discord-bans-
| the...
|
| [2]: https://www.newsweek.com/facebook-robinhood-stock-traders-
| gr...
| sjburt wrote:
| I think because both the discord server and the facebook pages
| were cesspools of sexist/racist content, that during the GME
| frenzy they got even worse, and the services knew that they
| would face increased media scrutiny with all of the increased
| attention. The hit pieces practically write themselves.
| dbt00 wrote:
| Social media companies often check for things that are against
| the TOS when a media storm is brewing, this is not new. They're
| trying to stay ahead of negative press.
| bitcharmer wrote:
| Yes and no, by banning WSB social media _created_ negative
| press too. There 's an implication: "if they got banned then
| there must be something wrong with them; probably racist or
| nazis".
| duxup wrote:
| Robinhood's actions could be independent of whatever happened
| with Facebook and Discord.
| _trampeltier wrote:
| I also don't think it's the 100% truth. First, I don't
| understand why you couldn't buy just some stocks. If RH really
| had not enough money, you couldn't buy any stock. Second, when
| you buy stocks on RH or any other exchange, you have to have
| the money on there on the account. So the money is there. There
| is no risk on the long side at all. Third, RH was not the only
| one, suddenly several exchanges have the same problem at the
| same time .. no I don't think so.
| swampthing wrote:
| Does there have to be one single explanation for 3 separate
| events?
| bobthebuilders wrote:
| Occam's razor. The fact that someone said take down WSB is
| way simpler than any alternative.
| jcranmer wrote:
| Except you're missing the explanation as to why all of the
| actors have a reason to listen to that person. That's where
| things stop being simple.
| sixstringtheory wrote:
| "Simpler" is subjective and sort of beside the point of
| Occam's razor. The razor is about choosing the competing
| hypothesis with the fewest assumptions baked in.
|
| "When you hear hoofbeats, think of horses, not zebras." A
| massively orchestrated conspiracy requires a lot of
| assumptions and so _probably_ violates the razor.
| duxup wrote:
| I'm not sure that's more simple than different groups
| taking different actions for their own reasons.
| dbt00 wrote:
| "Someone" said it and all these people listened? You're
| going to need more evidence than that.
| swampthing wrote:
| Certainly, writing that is simpler than writing out the
| reasons behind 3 separate events. But I think Occam's razor
| is more about actual simplicity, and would cut against
| arguing that there was an elaborate conspiracy that
| involves multiple large companies acting against their own
| interests.
| srcreigh wrote:
| Nope. I'm curious about the clearinghouses (DTCC). Robinhood
| explains the general process in a post from 4 days ago [1].
|
| It would be great to see more details for the DTCC's increase
| in the amount of required collateral. I tried Googling for
| some info but didn't find much (probably haven't tried hard
| enough yet) ex [2].
|
| Naively, what we saw was a failure of the financial system to
| support trades. It may not be Robinhood, but it may not
| necessarily be T+2 either.
|
| Is there a website I can use to query the current deposit
| requirements for GME? Is it public info? Are there details
| provided for factors affecting that amount that can be
| compared across different stocks?
|
| I'm a total noob please forgive my noob curiosities :)
|
| [1]: https://blog.robinhood.com/news/2021/1/29/what-happened-
| this...
|
| [2]: https://dtcclearning.com/products-and-
| services/settlement/se...
| tmnstr85 wrote:
| When you're getting your face rearranged in one corner of the
| boxing ring, very often the body tries to naturally move to
| another corner.
|
| Settlement cycles and market censorship are two separate things.
| It's on robinhood to make sure they can meet the same liquidity
| standards that banks have been "stress tested" for ever since
| 2008. Keep in mind that it wasn't 3 years ago where T+2 was just
| a dream.
|
| Real time settlement is going to be driven by centrally governed
| organizations and their market counterparts (DTCC / SWIFT).
| hehehaha wrote:
| I don't even know what to say about this. It doesn't sound like
| he learned his lessons at all. He's calling for real-time
| settlement which is not practical for equities. On top of that he
| completely dismissed RH's root problems: very loose margins and
| new account standards. I was defending RH on HN last week but I
| have to reconsider.
| zaroth wrote:
| Robinhood got called up at 3am with an extortion demand for $3
| billion due that morning, unless they shut off Buy orders of
| GME.
|
| The collateral call had nothing to do with Robinhood's ability
| to pay for the orders it was placing.
|
| The problem was the GME short sellers were insolvent at the
| prices the stock was trading at, and contagion from the hedges
| failing would have left the clearinghouse looking at billions
| in loses.
| mike_d wrote:
| Which is why you push back and tell the clearinghouse to make
| a public statement to that effect.
|
| The CH is faced with two options: One, make the statement and
| hurt a public reputation they don't care about in the first
| place. Or they could cut off all trading to RH, which puts RH
| on the same side of the fight as they have been trying to
| market themselves as being on from the beginning. Win win.
| justlurkin12 wrote:
| Actually if RH didn't wire over the funds, they would be
| dissolved due to illiquidity.
| ABeeSea wrote:
| I don't think it was the CH's choice. I believe the
| collateral requirements are set in Dodd-Frank.
|
| And financial firms don't go j to extended bankruptcies
| when they run out of cash like other companies. They
| immediately go into receivership and/or liquidation. Trying
| to play chicken with the CH would have just ended RH as a
| company pretty much immediately.
| mike_d wrote:
| If it was a regulatory requirement, then they should have
| been put in to receivership immediately. Being unable to
| meet colleterial requirements means they extended credit
| beyond their means.
| ABeeSea wrote:
| They never went over the threshold because they turned
| off buying for the most volatile stocks.
| ZephyrBlu wrote:
| Sorry, what? I can't tell if you're serious.
|
| Robinhood didn't get extorted, their clearinghouse told them
| they needed more capital to secure further $GME trades,
| because the volatility has been off the charts.
|
| Vlad even states this in the article!
|
| > Clearinghouse deposit requirements skyrocketed overnight
|
| ...
|
| > The clearinghouse deposit requirements are designed to
| mitigate risk
| unethical_ban wrote:
| I think the point is, the effect of that sudden change was
| the screwing over of retail investors at the expense of
| funds and firms that weren't locked out. And that RH should
| have seen this coming if it were all "by the book". And how
| the hell can those fees go up so instantly?
|
| If we're going to be all "free market" about how only the
| strong survive, RH should be eliminated.
| [deleted]
| ZephyrBlu wrote:
| It _was_ by the book and they _should_ have seen it
| coming.
|
| _" How do clearinghouses determine how much is required?
|
| It's pretty technical, but the process basically works as
| follows: clearinghouses look at a firm's customer
| holdings as a portfolio. They use a volatility
| multiplier, looking at specific stocks, to quantify their
| risk. The clearinghouse may assign significant additional
| charges based on how much of one stock a firm's customers
| hold. If a firm's customers have more buy than sell
| orders, and the securities they're buying are more
| volatile, the deposit requirement will be higher.
| Clearinghouses can also require additional deposits if
| certain thresholds are met."_
|
| https://www.streetinsider.com/Corporate+News/Robinhood+Bl
| ame...
| unethical_ban wrote:
| Do you agree, then, that RH should be punished, if not
| dismembered as an entity, for incompetence leading to
| billions in stock losses?
| Spivak wrote:
| If RH is eventually found to have stopped trading on GME
| in purpose to manipulate the price then sure let the SEC
| draw and quarter them. But RH wouldn't be so severely
| punished for having downtime and this is basically that.
| justlurkin12 wrote:
| dumb question, why is not practical? As for the root problems,
| those are not related to the issue from last week (not sure if
| you're aware, but margin had no factor in play with the DTCC
| requirements).
| hehehaha wrote:
| There are many reasons but most importantly, delayed
| settlement serves as fraud deterrent and error/exception
| handling. Should be T+1 same as options. Think of it as a
| database, do you want instantaneous non-reversible commits by
| default when transactions number in the billions with known
| error rate? Or perhaps have a reasonable buffer for safety?
| justlurkin12 wrote:
| T+0 implies same day not instant. I think you can enable
| all of those features with hours of delay instead of days.
| hehehaha wrote:
| I can maybe see T-0. But I am pretty sure Vlad is talking
| about near real-time. Even with T-0, most of the trading
| is done in the last ten minutes at 3:50 EST (due to
| vwap). I don't see the benefit in settling T-0
| outweighing the value of safety net provided by extra
| time overnight.
| unethical_ban wrote:
| Why are reasonable buffers done in days? Why should fraud
| prevention be done by lag, rather than proper IAM?
|
| And non-malicious errors are reversible.
| PeterisP wrote:
| For cash, pretty much every country has a functioning real
| time gross settlement system that manages to do essentially
| instantaneous non-reversible commits by default and carries
| all the large payments and the netting settlements for all
| kinds of smaller bundled payments. Yes, there are risks,
| errors and fraud - but if that's manageable for very, very
| large amounts of cash, why wouldn't it be for stock?
| rodgerd wrote:
| Most countries do not _settle_ in real-time, or even
| close to it.
|
| Even ones moving towards it are still allowing 5 - 15
| minute windows on settlement.
| hehehaha wrote:
| I would go even further. If I am building a next gen
| electronic wallet (which happens to be a side project of
| mine) I'd build in a full week of escrow-like mechanism
| by default.
| kelnos wrote:
| > _He's calling for real-time settlement which is not practical
| for equities._
|
| Why not? In most cases share ownership is just a row or two in
| some database. If you can update those in real time (which you
| should; a legacy system that doesn't support this can be
| upgraded, even if at significant cost in implementation and
| testing), and do instant (or near-instant) funds transfers, you
| should be able to settle within minutes. Certainly same-day, at
| least.
|
| Now, I would accept that maybe instant settlement is not
| _desirable_. Maybe it 's good to be able to reverse fraudulent
| or illegal trades before money fully changes hands, for
| example. But that's a different thing.
| [deleted]
| mikelward wrote:
| Why is it not practical?
| naveen99 wrote:
| baby steps, maybe we can go to overnight settlement first.
|
| Robinhood please bring options on cme bitcoin futures to the
| masses.
| h1srf wrote:
| Ccan you trade futures on RH yet? Why would they allow options
| on futures if they don't allow futures trades
| 300bps wrote:
| US Equities recently changed from T+3 to T+2:
|
| https://www.sec.gov/news/press-release/2017-68-0
|
| There are many types of securities that are already settling at
| T+0.
| kolbe wrote:
| It blew my mind when they went from T+3 to T+2. I couldn't
| fathom why they would go about changing it, but not go to
| overnight settlement. Government, though.
| aeyes wrote:
| You might be surprised how much of the modern world is
| running on CSV files on FTPs.
| throw0101a wrote:
| > _Government, though._
|
| Equities clearing and settlement is done privately:
|
| * https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing
| _...
|
| If the members of the DTCC want to have it done faster,
| they'll request it. There's been talk, but it involves
| everyone agreeing to it and changing their internal workflows
| as well AFAICT.
| [deleted]
| the_mitsuhiko wrote:
| What does T+0 mean? Instantly or same day?
| tobyjsullivan wrote:
| According to [0]:
|
| > 'T' is the transaction date
|
| If that's an accurate definition, then it's safe to say it
| would technically mean same day.
|
| Simultaneously, if we want to be technically accurate to a
| pedantic level, "instant" would be impossible given speed
| limits of information transmission (speed of light), etc. So
| "T+0" couldn't mean "instant" in any case.
|
| Maybe some settlements are, in fact, near-instant but I don't
| think that's implied by "T+0".
|
| [0] https://www.investopedia.com/ask/answers/what-
| do-t1-t2-and-t...
| 300bps wrote:
| Same day settlement. Definitely not instant.
| bionhoward wrote:
| I find it surprising to see Robinhood leadership call for
| increased speed, when they haven't launched a public API...
| bob1029 wrote:
| I am not surprised they haven't made an API public yet. Looking
| at how razor-thin their operational margins have been on IT and
| financial fronts, any hypothetical added load from traders
| trying to algorithmically hammer some API is probably going to
| wind up in disaster.
|
| I cannot speak for all of the engineering that goes down at
| Robinhood, but the way their web-based trading interface
| performed for me was regrettable at best. Never was able to
| load my history in that interface without my browser getting
| javascript timeout warnings. Always had to go back to my phone
| to see what dividends I got paid out. This sort of problem,
| which strongly-encouraged me to switch to a different broker,
| does not give me much confidence that other areas of
| engineering at Robinhood are handled much better.
| jeffbee wrote:
| Wouldn't real-time settlement have completely destroyed RH last
| week? How would they have funded trading?
| justlurkin12 wrote:
| Real time securities wouldn't need brokerages to front
| collateral while the trades settle by the virtue of no settling
| period. They would only have to deal with customer capital used
| to buy the stock.
| kelnos wrote:
| Wasn't a big part of this issue fueled by RH fronting the
| money for trades when the customer was transferring money
| into their account from a bank over ACH? Making ACH instant
| (which I believe is in the works) would solve that, not T+0
| for settlement.
|
| (I don't have a good feel for what was the bigger driver of
| RH's issues though: overextension because of slow ACH or slow
| trade settlement.)
| elihu wrote:
| That may have been an issue in some cases, but even if RH
| had all the money in hand, they aren't (if I understand
| correctly) allowed to use their customer's money as
| collateral. So, RH has to put up their own money as
| collateral, and it's tied up for two days. They apparently
| didn't have enough funds to do that, given the trade volume
| they were experiencing. Also, under normal conditions the
| collateral requirements would have been a lot less.
| stu2b50 wrote:
| No, brokers must front collateral to clearing firms simply
| because there's no inherent reason to trust any of the
| firms will have their capital or equity obligations in T+2
| days. ACH transfers and margin, although possible reasons
| why a firm wouldn't have funds, are not the direct reason,
| which is DTCC requirements.
| [deleted]
| paxys wrote:
| No, that was negligible. Robinhood actually fronts the
| least money out of all major brokers (something like
| $1000). And if that was the case the easy solution would be
| to block trades if your account didn't have the sufficient
| settled balance.
| olejorgenb wrote:
| I still don't get why customer capital can't be used as
| collateral. Which scenario is this rule protecting the
| customer from?
| justlurkin12 wrote:
| That's my question as well. I think it's because the
| customer capital has to be transferred to the counterparty
| that issued the sell. I imagine that it makes things
| complicated if the DTCC has to send over 1-10% of this
| amount and then the brokerage that executed the buy has to
| send over the rest so, if I had to guess, they did this for
| simplicity's sake. Btw the requirement to not use customer
| collateral is enforced by the DTCC and not at a brokerage
| level discretion.
| NovemberWhiskey wrote:
| > _Btw the requirement to not use customer collateral is
| enforced by the DTCC and not at a brokerage level
| discretion._
|
| No, it's an SEC rule.
|
| Broker dealers can fail, sometimes due to malfeasance but
| sometimes simply due to bad management or even bad luck.
|
| In a system with a central clearing counterparty (in this
| case, the NSCC/DTCC), that organization mutualizes those
| risks by acting as "the seller for every buyer and the
| buyer for every seller": the process of novation splits
| each trade between buyer and seller into two. i.e. the
| seller sells to the NSCC and the buyer buys from the
| NSCC. Effectively the NSCC is guaranteeing the trades.
|
| The collateral is effectively a security deposit that
| varies in size depending on how much risk a particular
| broker dealer is bringing into the system as a whole.
|
| Does it make sense yet why this can't be done with client
| money?
| PeterisP wrote:
| So customer A is doing stuff where you need to put up a
| collateral with some counterparty.
|
| You can't use customer B's money (this is a key assumption
| that might be missing - it's all about the use of _other_
| customers money) for that collateral because, well, that
| collateral might not get returned in certain cases - that
| 's kind of the point of having a collateral. You'd lose
| that collateral if the counterparty goes belly up
| (insolvency, fraud, whatever), and, most importantly, you'd
| lose that collateral if you become insolvent. That's not OK
| - this is regulated so that you are required to ensure
| separation of "your money" from "customers money that
| you're holding on their behalf", so that the customer's
| money is untouched and unclaimed even you go bankrupt. It's
| not your money, it's the customer's money that you're
| investing on their behalf, so you can't put it up as
| repayment or collateral for your liabilities; and you can't
| put one customer's money as repayment or collateral for
| another customer's liabilities.
| dlubarov wrote:
| I think the problematic scenario is when the customer wants
| to buy a security using the proceeds of a recent sale,
| which hasn't settled yet. Since the proceeds haven't made
| it to the broker's bank account yet, the broker would use
| their own capital in the interim.
| ABeeSea wrote:
| Real time settlement and instant bank transfers would mean RH
| wouldn't need to put up any collateral.
|
| And even same day settlement after close of markets plus
| instant bank transfers would have completely avoided all this.
|
| I commented as such the other day. I really want this to spur a
| move to real time bank transfers instead of ACH.
|
| https://news.ycombinator.com/item?id=25990205
| kzrdude wrote:
| Robin hood has been called so many strange names and then gets no
| recognition when they want to strike at the root of the problem.
| marcinzm wrote:
| Robinhood knew A was the case when it did B. Given A, B can
| cause really bad things. Then it failed to properly communicate
| as the bad things started to happen. Now it's blaming A rather
| than its decision to do B or its failure to communicate.
| IgorPartola wrote:
| The simple issue that I saw with RH is that they restricted the
| ability to buy stocks like GME but not the ability to sell.
| It's one thing to freeze the stock in place. It's an entirely
| different thing to basically create a situation where your
| actions drive the price down while only letting investors sell.
| I will be honest I don't entirely grasp the situation, but this
| seems to me like it was not just a bad PR situation but rather
| that they actually did something wrong.
| tptacek wrote:
| Legality aside, imagine being an RH customer with a $300/shr
| position in GME locked in. Look where the stock is now, and
| where it's heading.
| astrange wrote:
| They didn't do anything wrong, they are not allowed to
| restrict sales, and they were forced to restrict buys because
| you can't get $3 billion collateral overnight.
| amznthrwaway wrote:
| This is not the root of the problem. This is a distraction.
| Nothing more.
|
| It sucks that some people (you) are so easily deceived.
|
| The root of the issue was that they issued margin accounts by
| default, and did not have adequate capital to meet the
| collateral required when those accounts were used to buy a
| single volatile name.
|
| There would have been no problem if they issued cash accounts
| by default; if they raised margin capital as they opened new
| accounts; or if the users had bought a bunch of VT.
| Illniyar wrote:
| If you allow yourself to take the blame, and don't point the
| finger at th real culprit when asked you can't be surprised
| when no one accepts it when later you do.
| paxys wrote:
| The whole episode has been a case study for how not to handle
| PR. Robinhood lost the public narrative every step of the way,
| and all their statements were late, lacking in detail and even
| contradictory. Remember the now-famous "we don't have a cash
| flow problem" statement from their CEO, right before they had
| to borrow a billion dollars to stay in business?
| ummonk wrote:
| Right, and it is noteworthy to compare the PR from Webull in
| response to similar issues.
|
| RobinHood's PR problems are entirely self-inflicted.
| swampthing wrote:
| Agreed. It's sad/shocking to see a China-run company out-
| execute a homegrown, well-funded US startup on public
| relations with the US market.
| [deleted]
| [deleted]
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