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Comment by sneak | Hacker News Reader

Can someone who knows more about such things than I explain to me why their weird response to the situation (halting buying, but still permitting selling) was deemed by them to be the best of their options (the other two obvious ones being to temporarily stop dealing in those securities entirely (halting buying and selling), or to continue letting people trade them as they had the previous day)?

It's confusing to me. I'd think if they were being risk-averse or something they'd have stopped dealing in them entirely until the craziness passed. The "you can only sell, not buy" part seems... odd to me.

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It is very likely that their "upstream" partners asserted this, and Robinhood didn't have much of a choice. Their biggest mistake is probably the god-awful communication with customers about this decision.

Another thing to note is that one of Robinhood's main investors from their last round, 'D1 Capital', is also down 20% this year [1] with a fund size of 20 billion, so that's a 4 billion dollar hole for them to recover from.

I've only seen mention of Citadel but the short squeeze on these stocks (blocked stocks) continuing could literally have made D1 Capital explode.

In the aftermath of this fiasco, perhaps Robinhood can get away with a small fine. Even a billion would be less than the collective sum all hedge funds involved could have lost had this upward price movement continued.

[1] https://www.bloomberg.com/news/articles/2021-01-28/dan-sundh...

Halting buying and selling is even worst - it means that people are locked into owning GME even if it tanks to 0.

(someone please correct if wrong)

Edit: I know they haven't halted selling, this is directly in response to a part of the parent's comment

They just halted buying and are still allowing closing out of your position.

You mean people who bought a hot potato might be stuck owning it when the music stops? Make no mistake, the music will stop and someone will be left holding it. Might as well be the folks holding it right now.

Buying was halted. Held shares can still be sold, if you so chose.

That’s what I’m seeing in RH when I look at the small amount of Blackberry (BB) shared I own.

If you sell it, someone gotta buy it. But buying on RH is blocked. They're just trying to crash the price.

Robinhood is one of many brokers. If you sell GME through RH, the buyer can come from anywhere.

First, RH aren't the only ones blocking GME purchases.

Second, if popular trading platforms artificially block demand, it becomes a self fulfilling prophecy, and the stock is going to plunge by this action alone.

Given Citadel's involvement, this is blatant market manipulation, and I hope people go to prison for this. Ftr, I never traded individual stocks, so I'm not affected, but this is still bullshit.

I misunderstood your initial statement. I interpreted it to mean there would be no buyers, anywhere.

Regarding you theory, I don’t know if it’s blatant but I agree it’s suspect.

In the simplest, likely potentially inaccurate explanation... Robinhood doesn't actually make the trades. They pay someone else to make the trades, add a small amount to the price, and that's how they get to 0$ trading price to the end user. The upstream party is refusing to do things, so Robinhood has no choice but to follow the rules that party set.

That's like, way over simplified but gets to the gist

[Edit cause spelling are hard]

Then why not communicate that in a diplomatic way. Their business and user base is at stake

When your marketing model is built entirely on sticking it to the man, how do you communicate that the man has you by the balls and you have no recourse because your business model is built on the man paying you off.

You do this clearly, because if you don't give people a good explanation, they'll find one elsewhere. And the person giving that explanation probably doesn't care about preserving your reputation.

My understanding is that Robinhood didn't actually block these purchases but rather the service they use to buy/sell stocks blocked it called Citadel

So it's not Robinhood, persay, but rather Citadel.

Why did Citadel block purchasing of GME stock? Because Citadel just invested 2 billion dollars in Melvin Capital Management; one of the hedge funds that has a lot to lose as long as the GME stocks keep going up.

I think this is possible, but do we know for a fact this is the case? Melvin claims they already got out of the GME trade. They could be lying, but they would open themselves to a lawsuit from investors if they were.

I'm not sure if Citadel can just refuse to purchase GME (RH could just go elsewhere), but maybe they said they wouldn't pay RH anymore for order flow unless they blocked it. But do we know that Citadel did this? I've only heard speculation to that effect.

RH could not just go elsewhere; moreover, they absolutely could not go elsewhere today. Handling order flow for automated transactions isn't something you can find on short notice.

I think they can go elsewhere. If Citadel can't beat national best offer, they are supposed to go with the national best offer.

https://en.wikipedia.org/wiki/National_best_bid_and_offer

They don't do this. See https://nypost.com/2020/12/17/sec-slaps-robinhood-app-with-6... .

But they can. That's why they got into legal trouble with the SEC. See page 4 on the actual SEC document on the case, the section called "Best Execution": https://www.sec.gov/litigation/admin/2020/33-10906.pdf

Melvin could have "gotten out" by selling their position to Citadel for all we know.

The number of shares short is still the same as a week ago, about 70 million.

That's the rumor but there's no evidence to back it up. Melvin could've closed their GME positions days ago, in which case Citadel wouldn't be on the hook for any further price changes.

citadel only handles like 10% of their order flow. the rest is other companies. including Apex clearing which also handles it for Webull and other platforms that halted trading

I really don't think you'll get a good answer from anyone for a couple of days at least. This is quite unprecedented (not them halting buying of a certain stock, but the whole situation with its underlying context).

Preventing people from exiting an existing position is a much bigger deal than preventing them from entering a new one.

You can still close any positions you have open, as of 3 PM Eastern.

Robinhood owners are the ones bleeding money from GME.

Citadel is a hedge fund that owns Melvin Capital Management.

Melvin is a $GME short seller predicted to lose BILLIONS due to the people taking the free market back.

Citadel owns the app Robinhood.

Citadel banned purchases of new $GME shares on RH.

Market manipulation.

https://twitter.com/shane_riordan/status/1354786445668610049

^ quoted from here

Ooops their correction here:

https://twitter.com/shane_riordan/status/1354787975058616320

Citadel doesn't own Robinhood.

Yeah, I keep seeing this claim posted that Citadel owns Robinhood, but I can't find any evidence to back it up. The Wikipedia pages for each don't mention the other.

You should probably include the correction Shane made later:

https://twitter.com/shane_riordan/status/1354787975058616320

"Citadel isn’t a majority owner of RH, but they DO pay RH a hefty figure to the app for consumer data. On top of the money paid to bail out Melvin.

All they have to do is threaten to pull that money for data from RH and RH pulls new share purchases of $GME.

It’s wild."

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