Hacker News Reader

Thank you for being a voice of reason. The speed at which the "wall street cabal is pulling strings and hurting the little guy!" conspiracies erupted was breathtaking.

It's a few short sellers who got wrecked. The rest of the institutional guys are fine and don't care about this except for how much money they're making.

> The rest of the institutional guys are fine

Yes, that must be why trades are restricted, wsb got infested with bots and banned from discord, and the media is in full shit flinging mode against wsb.

>>The rest of the institutional guys are fine and don't care about this except

I have been in frequent touch with my wall street friends. Many are "fine" and the general feeling is that long term this will get sorted out, but many of them took some hits and are watching this very carefully. Many firms had to move out of long positions to get capital, so this had trickle down effects elsewhere in the market.

Things that undermine the credibility of the market and bring congressional oversight hearings into the conversation aren't just being ignored.

Even they agree, it feels like "something is off" but who might be doing bad things is still unclear to everyone, even guys I know with 15+ years in the industry.

No one remembers that most short positions are actually held by retail investors. I myself regularly take short positions.

The reason trading was stopped is that if a stock price suddenly gaps then the retail investors can lose more money than they have in their accounts. Then the brokerage or their clearing firm have to take the losses. They are not willing to do so, so they stop allowing trading. The brokerages are not somehow colluding to make hedge funds money, they are just trying to make sure that they do not lose money themselves.

But trading wasn't stopped. Avenues for non-professional investors to continue buying shares were cut off. They were still allowed to sell shares as desired.

I don't really have an opinion on whether the GME thing is a pump and dump scam, or a real opportunity to enforce a classic "The market can remain irrational longer than you can remain solvent" lesson to those shorting these stocks.

But I do have a real issue with removing just the "buy" side of the equation. Price is always a function of supply and demand, and I don't understand how anyone could justify halting just buy orders. The obvious impact of artificially reduced demand is that the price will drop.

Further - if this price drop was designed to protect these firms from possible losses (and I don't really care whether that loss was by allowing unvetted shorts by investors who don't have the capital to cover, or whether it was collusion to protect other parties) then I still don't see how you can reasonably come to a conclusion that looks good for these firms here - They're manipulating stock prices to avoid losses.

Short squeezes are illegal according to the SEC. WSB shows many people clearly collaborating to create a short squeeze, example - https://www.reddit.com/r/wallstreetbets/comments/l594yg/gme_....

Robinhood would have legal liability for aiding and abetting an illegal short squeeze had they continued.

Short squeezes are absolutely not illegal - They're a natural property of how the investment vehicle operates when the price of shares spikes.

The illegal part is a scheme to collude and manipulate the availability or price of the stock to intentionally cause a short squeeze. I'm not entirely sure I agree with you that posts like that are "collusion" (Cornell def here is interesting as a refresher - https://www.law.cornell.edu/wex/collusion), but I can certainly concede there's plenty of shades of gray here.

FUD, the ability to buy a stock is not an option that exposes the broker.

Short squeezes are illegal, and Robinhood continuing to allow blatant short squeeze activity could be construed to be aiding and abetting it, giving it huge legal liability. Hence, the shutdown of trading.

>The conspiracy hypothesis might have legs if Citadel's asset management and market making arms colluded. Absent evidence, however, it's a suspicion at best.

Yeah, uh, they do that all the fucking time. It's a Soviet fiction that they keep a firewall between those two businesses.

The thing that confuses me most here is what legal grounds does this proposed suit actually have to stand on? I've not read RH's terms of service, but I'd be surprised if whatever terms it laid out didn't basically have a fuck-you clause in it that would throw out any contract violation suit. Additionally, I'm not sure if there is actually a private cause of action to sue someone for alleged market manipulation (not that I believe the allegations here).

Financial institutions are generally very tightly regulated. A lot of things are set by law, not contract. I have no particular knowledge in this domain, but I am sure we all will learn more about when the law ends and discretion begins by following the news about this lawsuit.

How come they only had trouble executing buy GME orders? Honestly I hope RH is burned to the ground after giving up whoever coerced them into doing this.

> How come they only had trouble executing buy GME orders?

I used to be an options market maker. Different animal same game park.

If I saw a stock doing what GameStop is doing, I'd pull the plug. One, we'd have already made a ton of money on it. More importantly, with this kind of volatility (and correlation), we'd be well outside the parameters of our risk models.

Usually, cash equities don't have this problem. But there is a realistic chance that a desk will fill a bunch of sells, turn around, and within those microseconds watch the market gap down 50%.

It's unlikely. But how unlikely? We don't know. We're too correlated, and too volatile, to predict that. You do something like that, particularly after the amount of press coverage this is getting, you are going to lose your job.

> I hope RH is burned to the ground after giving up whoever coerced them into doing this

Between the gameified UI that encouraged day trading, their reliance on payment for order flow and margin-lending / options trading model, I won't say this was bound to happen. But it was an identifiable risk.

The warning signs were clear when their systems went offline under large volumes. Concerns were dismissed then. I expect this will be forgotten by much of their user base soon enough as well.

Honest question, why should market making organizations be allowed to take the upsides involved in their position but be able to avoid the downsides by just not doing the job they signed up for when they feel the risk is too high? The argument for why we allow these organizations to siphon money as a middle man is because they provide an important service and are taking on risk. But if they're allowed to bail when things actually get risky that's a lie and they're just leeching money. You made the analogy that their job is like vacuuming nickels in front of bulldozers in another thread, but if they can just leave when the bulldozers show up what they're actually doing is just vacuuming free nickels that other people dropped.

I know its pretty clear my current personal opinions on this topic lean rather hard in one direction but I am truly open to hearing the counter argument and could be convinced otherwise. Some of your posts here and in other threads have changed my view on other parts of this whole mess already so I'm asking because it seems like you're willing to discuss sanely.

> why should market making organizations be allowed to take the upsides involved in their position but be able to avoid the downsides by just not doing the job they signed up for when they feel the risk is too high?

This is a great question.

Short answer: they shouldn't. When a market maker signs up to make markets on an exchange, they commit–contractually–to providing quotes in good times and bad. Payment for order flow contracts can vary, and I don't know what Robinhood's terms are, but they typically carry a similar requirement.

There are reasonable exceptions. If your systems are having issues with a stock, e.g. the intern entered a dividend wrong into the database, you can declare "self help" and stop quoting for some time. This is occasionally abused. But exchanges are decent at policing it.

In this case, though, yes--a lot of market makers made a ton of money, got scared, shrugged and then put their hands up. (Again, caveated to Robinhood's agreements.) Fortunately for them, the crowd has been distracted by this Ken Griffin called Robinhood to screw over /r/wsb story, so they won't get much more than a slap on the wrist.

I take it then that you think this is nonsense:

https://twitter.com/justinkan/status/1354853920762253315

?

Not necessarily. But it's ambiguous.

If Ken Griffin put in GME shorts before ordering his market making desks to quit in it, yes, that would be criminal.

If a fund manager bought puts a few hours before the market makers put up a white flag, I'd want a thorough investigation to rule out collusion. But by itself, suspicious--nothing more. If a long-short value fund bought puts based on an algorithm keyed in months ago before market makers fled the scene, it's almost certainly innocuous.

And if the options desk was hedging the puts they just sold by selling short while the cash equities desk called it quits on the name, that would be perfectly normal.

I am sorry, can you explain again why MM's would only pull out of selling GME? Because RH only stopped people from buying GME.

> why MM's would only pull out of selling GME? Because RH was still allowing buys.

Market makers typically would pull out of the name, not out of one side.

My guess is Robinhood didn't want people opening new positions--long or short--in the name. Blocking people from selling an asset you sold them raises all sorts of issues. But denying them the ability to enter into a new position through your services is on more-stable ground.

Thanks for the clarification.

>Citadel has no short positions to speak of in GameStop. They bailed out Melvin, which means they made money, not Melvin's positions per se. Also, by the time that happened Melvin had already closed out its short.

You have made these claims dozens of times today without citing sources. Are you spreading insider information, lying, or just incredibly lazy and don't care if people believe you?

Lazy and don't care if people believe me. I'm commenting on HN. I have zero horses in this race beyond entertainment.

Added source for Melvin Capital making public statements on its short position. They could be lying. But then that's securities fraud.

Just going by the numbers, wouldn't we have seen much more volume if they had actually closed out their position?

> wouldn't we have seen much more volume if they had actually closed out their position?

More than what? GameStop was the most traded stock in the country for a few days.

The SEC fine / lawsuits for that lie are very low relative to what they'd lose on those short positions.

> SEC fine / lawsuits for that lie are very low

Intentionally making unambiguously false, material and self-serving public statements like that is well beyond fine and lawsuit territory.

They kept it ambiguous, did they not?

Why would they bother to make such statements early in the AM if they had actually closed out their shorts?

They said before they do not comment on their positions. Why would they do so now if it wasn't a serious situation?

> They kept it ambiguous, did they not?

"We have closed out our position in GME (GameStop)" isn't ambiguous.

> Why would they bother to make such statements early in the AM if they had actually closed out their shorts?

Most likely: Citadel required them to. The bailout was going to be announced. Citadel didn't want informed observers speculating on whether Citadel had just ponied up to an unhedged falling knife.

Otherwise, Melvin is a hedge fund. Its LPs are nervous, and assuring them the worst is over could sow doubt in would-be defectors. This could also be done by way of confidential notice, however, so on its own it isn't enough. The other factor is, perhaps, to get the people prank calling and such off their backs. That was a stated factor for Left at Citron.