This. If your business is to provide a trading platform, you can't forbid your clients of doing the business they want, with their money. You step in the middle of the process, you're liable for your interference.
Being cynic about it, nothing of consequence will come out of this. RH will just pay up and continue business as usual. WallStreet will have successfully crushed the little guys, ironically, doing the same they are complaining about, market manipulation. And in the future people will think twice before attempting something like this again.
Look at Facebook and Google, they keep abusing their users, but without a good alternative, there’s very little to do about it.
Edit: eloquently put by a sibling comment, the issue isn’t having an alternative today, but what would happen when those other alternatives are faced with the same conflict of interest as RH is facing, and the answer is that they would probably react the same way, here’s the link: https://news.ycombinator.com/item?id=25947300
>doubt they'll be back
Going where instead? Perhaps going to nowhere and not investing anymore, but if that's the alternative RH won't lose much on the margins vs if the "free market" wasn't really just a meme.
We live in a financial oligarchy. If we didn't, this blatant corruption with no recourse wouldn't be happening.
To another brokerage? This question doesn't make sense. RH isn't the only brokerage around, and there is a mass migration of people into other brokerages. Their app is currently at 1.0 stars.
But the fact RH would simply throw its customers away to appease hedge funds tells you something about who's in charge.
To be clear I'm not saying people won't "want" to go somewhere else that let's them trade how they want to trade (though the low friction and UX on RH itself needs to be re-implemented to equate a like for like substitution), and I agree they should and RH deserves to get ruined by users leaving en masse... I'm saying they won't be allowed to do so if another instance of this same dynamic occurs. Additionally, that there are calls for censorship of wsb, the future co-ordination on social media is also in question
They have some warnings amounting to "this thing is crazy, we'll do our best", but they haven't stopped me from trading. Other brokers are the same.
I think Robinhood cost themselves their business today. Anytime someone says "what broker should I use" the first answer is going to be "not Robinhood, they screwed everyone over" regardless of how true that statement is. I think the industry is about to come under fire too. Heads are going to roll on this one. Action across the board is widely supported by both sides of government. If it is even close to as bad as it looks, Wall Street firms just cost themselves much more than their short positions.
Furthermore, the fact that EU brokerages are not stopping trades is something to be considered, no?
Whether you agree with that ethos or not, I think we can at least agree that RH lacks the courage of its convictions.
I won’t speculate on the legal matter, but it sounds like a good witch hunt!
Really, a few rich targets may likely suffer (...or not, when it is so likely deserved).
I’m concerned that many Elanors, who’s teachers’ pension fund & retirement plans, were potentially compromised here.
I don’t think pensions belong in hedge funds is the bottom line.
(Combining unaccredited investor portfolios might look something like combining subprime loans, but...)
Yep. It's very possible that RH just knowingly violated whatever rules/regulations in full expectation that this would still be in their long-run best interest, particularly if they were financially exposed in whatever ways on the shorts that were generating losses. We'll see how this works out for them - they'll take a reputational hit but honestly most people do not have an incentive to leave the platform other than smoldering moral outrage or because they think that GME-like opportunities will continue to present themselves in the future (unlikely imo.)
It was funny when it was just hedge funds losing millions of dollars because they shorted it, but eventually all the WSB people buying the stock are going to be stuck with something worthless once it inevitably comes back down to Earth.
Trading on GME probably should have suspended a while ago. Now we're stuck in a situation where RH has blocked purchases, and people are going to blame them when the stock tanks and they lose their money rather than themselves for buying ridiculously overpriced stock to begin with.
Or if only retail is unable to open new positions, why are institutional investors allowed to open new positions and profit from the moves while retail cannot?
This is so close to "allowing sells but not buys" that it is blatant market manipulation.
Now the hedge funds are of course trying to prevent this by calling favors from the brokers and putting out fake news that they've already closed out. Both sides are using manipulation and displaying the worst parts of our markets, our capitalism and even our character for the whole world to see.
At the end of the day, humans are greedy beings. It's totally natural, and we need to accept that. But as we accept it, we need to figure out ways to regulate that greed so that it is a force for good overall. Capitalism is based on greed, but that doesn't mean it's not the best economic system. On the whole, a group of entirely self-interested individuals can still work together in a sense to grow our economy, build new technology and make the world a better place.
Go ahead and explain how that is stealing?
https://twitter.com/555Sunny/status/1354854993946406917?s=20
Why is this the pertinent question? Even if it wasn't legal, they would just re-interpret the rules in their own favor.
Additionally, this is presented as if any of us had any say whatsoever in the writing of these laws or their enforcement or non-enforcement.
It's a distinction without a difference. It implies that "if we don't like it we should change the laws". But none of us wrote the laws in the first place, and certainly if we had the power to change the laws we never would have written them this way. If we had the power to change the laws we would change them. So it's an irrelevant point.
The entire point of the situation is "these are the laws" either officially, or unofficially but in practice.
For what it's worth, Robinhood was not the only brokerage that is restricting trading GME. TD Ameritrade, Interactive Brokers, and WeBull also have restrictions in place right now.
The timing of it makes it unethical.
If Citizens United says money is speech, the financial system effectively has no guard rails
Except when it does for the institutions
Citizens United says specifically that when a bunch of people take their money and get together and start a new corporation (Citizens United) (a not-for-profit corporation in this case, though not a charity) and the corporation proceeds to engage in political speech (by filming a movie named Hillary: The Movie)...
then the corporation, as an entity, is considered to have the rights like the right to free speech, because it is owned by people who have rights, and this is a way for those people to exercise those rights together. Therefore this political speech is protected by the First Amendment, and restrictions on it are evaluated on the standard of strict scrutiny, and the FEC cannot halt this distribution just because the corporation was using money to make it happen.
(You will notice that people are not allowed to band together and exercise the right to vote, and thus corporations don't get to vote.)
This concern is relevant to GME, BB, AMC, etc. because folks are joining Robinhood, Webull, and similar apps in record numbers in a rush to jump in on these hyped-up opportunity.
https://www.bloomberg.com/opinion/articles/2021-01-28/robinh...
Go look at past instances of Robinhood going down and the amount of people who claim they're going to take action because of lost money
Platforms are there to enable interface with market, not decide what I can and cannot buy from that markets.
Regulators are (intentionally) designed to be able to exert pressure with a lot of discretion. The financial industry is having a ferocious rage fit. The NASDAQ CEO even went on air calling for immediate SEC regulation... the irony didn't even seem lost to him.
Getting on the industry and SEC's bad side is the liability, and that kind of pressure is a big part of hw the SEC actually "regulates." It isn't strictly through rules.
On the other hand, manipulating the market seems like a good way to lose a business.
But this is straight-up market manipulation. There's no justifiable reason to halt trading on GME except as a means of cooling the market long enough for Important People to exit their bleeding positions.
There's a big ass disclaimer that you sign saying that markets fluctuate and that Robinhood isn't liable for losses of capital.
Robinhood is stuck between a set of large lawsuits and a set of even bigger lawsuits. It seems like their internal counsel has decided halting trading will lead to the set containing the smaller lawsuits of the two.
You think they are legitimately scared of being successfully sued for "tricking people" into buying through gameification? That looks like CYA-BS from here. If that were a legitimate concern, why wasn't the interface de-gameified long ago?
If it was purely a halt on all trading I could see the logic, but only preventing people from buying seems fishy to me.
(I'm not involved one way or the other; I don't trade shares at all)
Buying exposes them to additional risk in the form of potential future lawsuits.
Which, lets be honest, would have more merit than a "I missed out potential gains" lawsuit.
> If a retail customer loses money and makes a FINRA complaint that Robinhood induced them to buy through its gameified interface, it is liable
This seems like an attempt to pass the buck to FINRA, and I'm fairly skeptical, but open to being convinced. Have there been FINRA complaints that resulted in substantive enforcement actions centered on a broker's gamified user interface?
It's only certain retail brokers, and, mystifyingly, mostly the ones who have hedge funds with significant ownership interests.
But the general case of “the market should never interfere with trading” isn’t true, but typically we only allow that at the exchange level.
What Robinhood has done is apparently to ALLOW trading, but only selling, not buying. At a time when a close partner of theirs is at significant risk if the stock price goes up.
Citadel wants to stop retail investors from buying so they can both buy and sell to themselves and drive the price down and scare retail investors into selling.
What is a brokerage liable for by doing their job?
If they didn't do anything, the precedent of courts and regulators giving retail investors wins because someone's gameified UI induced them to trade would leave them with untold liability. In this branch of reality, they're going to get sued--and deservedly.
>with their money
With your money. Most people are trading on margin, because they're gambling addicts.
EDIT: I'm not sure if it's most that are trading on margin. Certainly it's everyone I've seen, but people who share their trades publicly are probably not representative.
It's possible they are doing this to protect investors. It's pretty clear GME is going to crash at some point in the near future. Having thousands of investors on their platform go broke at once is just bad for everyone (who isn't short). By blocking these trades, RH is protecting investors from potential loss.
In a way, it's almost like preventing someone from investing in a Ponzi scheme. While it might piss you off, it will save you in the long run.
Of course... that's assuming RH is acting in good faith.
I can understand complaining about getting thrown out of a casino for winning too much. I can't understand complaining about getting thrown out for losing too much. The people "investing" in these companies are totally clueless and the majority of them are going to lose all their money. Cutting them off is clearly in their best interest.
Whether or not that kind of paternalism is acceptable is another matter.
Can you imagine a trading platform just outright refusing to process your orders because it was better for them?
Basically: there's a reason for these trading controls to exist. And I really think people here are getting ahead of their skis. Almost everyone screaming about sticking it to Melvin is, as I see it, a victim of a trading scam.
Melvin seems to have lost a lot of money, sure, but... so have all the WSB folks. Very, very few people are going to come out of this ahead (and realistically some of those are going to end up in jail).
That's not true. Today the stock went higher than at any point yesterday.
Edit: multiple responses seizing on what can only be called a conspiracy theory at this point that some how absent Robinhood's tiny trade volume this stock would somehow still be going up from a 500% increase.
Guys, YES, the system is kinda rigged. What happened here is that you all GOT SCAMMED. There is no magic short call coming tomorrow. The stock was pumped (starting originally with a short squeeze, but of course now it's just a regular bubble), and you were fooled into trying to buy it high. You are the victims here, not the heroes.
As for "this would have happened anyway", well that doesn't sound very free market to force the very thing you claim to be trying to stop. RH says "oh no we don't want you to lose money, so we're going to cause a crash on the stock. Feel free to sell".
It's rotten to the core.
This action is likely (at least partially) targeted to prevent new users who have never traded a stock from trying to hop on the train and follow a "How to buy GME Options to make BANK in 5 simple steps!" article from losing everything.
Do you think there would be less blow-back if Robinhood only restricted new accounts? Or maybe only people with minimum balances?
If they stopped allowing people to sell their existing positions, then a lawsuit about "Robinhood is holding my funds hostage, didn't let me sell, and now I lost money because of them" would have come in, and probably would have had a lot more merit.
I believe they are committing fraud and stock manipulation.
But yes, if I used your assumption, I would say they should have restricted options for new users, or put extra warnings up.
And to your first sentence, no, you can't just move to a new platform. It takes more than a week to move funds from one brokerage to another.
The stock is already manipulated, though. No one racing to buy GME is doing so because a genuine desire to receive dividends, exercise voting power over corporate governance, etc... They're doing it because they read on wallstreetbets that a magical "short call" was coming tomorrow which would spike the stock.
That's a SCAM. It's not going to happen that way. The owners of all those early shorts have already settled their positions (and, yes, lost a lot of money in the process) and all you're seeing now is a tulip-style pump and dump.
You got scammed. You're not a hero. Robinhood might well not be acting in your best interests but they almost certainly saved you money.
The users on WSB used publicly available data to see that the shorting was occurring. They did what "the pros" constantly do, which is pool resources and make moves collectively. That is not "manipulation" in the legal form of the word. Not like shutting down trading, in one direction only, for retail only. Since it is individual users on a public forum winning, instead of the guild of hedge fund bros, the power player (Citadel) is forcing the shutdown.
Whether or not pumped up stocks are wise is irrelevant. The fact that something that happens constantly gets axed because the wrong people are winning is the issue.
If Robinhood just wanted to make money, they would have let this continue. People like to complain that RH gets payment for order flow, but they just knowingly cut off that order flow.
It feels like Occam's Razor should apply here. Either:
1. Robinhood felt that it's long term prospects were better if it's users weren't able to gamble and most likely lose all of their money, thus being scared away from the stock market forever.
2. There is a secret cobal that Robinhood, who was previous the "bad guy" of the financial world, is now in and tricked it's users into buying a stock that would be worthless just so that Robinhood could shut of trading at the peak, and let their secret hedge-fund buddies make a ton of money.
I'm not inclined to believe the conspiracy theory when there is a more more reasonable option.
Option 3: The cabal is there, it isn't secret, and they were on the hook to lose so much money that it was cheaper to essentially sacrifice the RH brand than to let the short get fucked to infinity.
Edit: They have stated on a blog post that this was a risk management move on their part - not strictly in the interest of the customer.
The market is broken.
Since RH doesn't allow shorting, the only way to close a position is by selling shares. So yes, it is exactly the same as only allowing people to sell shares.
There is a reason for trading controls by a neutral third party. Trading controls created and manipulated by a stakeholder is market manipulation and illegal.
Not saying its moral or not incredibly corrupt, but I can definitely see Robinhood having the legal equivalent of "our platform, our rules" here.
Do you actually know the rules? Brokers are highly-regulated, and their job is to give a fair trading platform.
Brokers have been doing this for decades; it's clearly within the bounds of what they are allowed to do [0]. Maybe this lawsuit can prove that they are conspiring with hedge funds to manipulate the market (which would be illegal), but just this act alone is not illegal.
[0] https://www.cnet.com/personal-finance/robinhood-app-td-ameri...
"Fair, orderly, and efficient markets" doesn't mean that you take away someone's seat at the table just because he's winning. If it were Pershing Square driving the long side instead of r/WallStreetBets, there's no chance in hell that Goldman (Ackman's PB if I'm not mistaken) would block opening trades.
This is mostly false. trading platforms are regulated by a bunch of orgs like the SEC, they absolutely cannot do whatever they want, there are heavy regulations on these activities or it would be easy for a broker to scam their clients out of their money with backroom deals with this or that third party and create conflict of interests.