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Comment by mcv | Hacker News Reader

From what I understand Melvin Capital, one of the biggest short-sellers that got in trouble, is owned by Citadel, which is also Robinhood's largest customer (buying user data, of all things) and maybe partial owner. I'm no lawyer, but to me it sounds like that might be a conflict of interests.

By preventing people from buying shares, the short-sellers have less competition to buy the available shares, and will have an easier time getting them, while paying less for them. Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.

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Citadel invested in Melvin this week at a steep discount, they do not own the majority of Melvin (at least that hasn’t been publicly announced).

Melvin announced they had cleared their position in GME days ago so is unlikely to be the driver for brokerage behavior today.

Citadel does not buy user data from Robinhood, they are one of Robinhood internalizers. They pay for the privilege of either trading against Robinhood based orders or routing them to an exchange.

Not allowing buys can happen for a wide variety of reasons from technical, business to legal to counterparty demands and isn’t necessarily signs of collusion.

That said there is certainly the appearance of a conflict of interest and I’m sure Robinhood will be addressing that in court and to investigators presently.

It seems we're both right in a way. Cory Doctorow has a through explanation here: https://pluralistic.net/2021/01/28/payment-for-order-flow/#w...

> "Robinhood partners with institutional investors and lets them spy on what the average joes are buying and selling. Sometimes, this is just "market intelligence" ("Hey, people like fidget spinners") but the main event is front-running."

> "If you're paying Robinhood to tell you what assets its customers are about to buy, you can go out and buy them up first and sell them for a profit to Robinhood's customers."

> "Or you can buy some of that asset up because you know its price will go up once Robinhood's customers orders are filled."

> "Citadel Securities is Robinhood's main institutional investor partner."

Cory Doctorows position is built on a flawed understanding of what payment for order flow is all about.

Internalizers do not go out and buy the things they’ve peaked at during the internalization process.

The rumour is that Citadel renewed their shorts.

https://twitter.com/justinkan/status/1354853920762253315?s=2...

> From what I understand Melvin Capital, one of the biggest short-sellers that got in trouble, is owned by Citadel

No, Citadel does not own Melvin Capital. Melvin Capital received an investment from Citadel (the hedge fund, not the market maker) and Point72 this week.

> Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.

Melvin already cut its losses this week, as was widely reported. There is no evidence for the counter claims that they're lying, which themselves originate on reddit. In particular: all the widely cited short interest figures on reddit which purport to show this are out of date (usually by weeks), and even if they were true, they would not be proof the short positions weren't closed.

So just partially owns, then.

In the sense that any Limited Partner partially owns an investment vehicle because they have a stake in it, yes.

Melvin founder was protege of Point72's SAC

The same way public retirement funds in Wisconsin "partially own" Apple.

Do public retirement funds in Wisconsin own >30% of APPL?

As was reported, the capital raise Melvin received wasn't 30% of their total AUM even after the GME losses. And even if it were, it was also reported that Citadel and Point72 received non-controlling revenue share.

I'm having trouble finding specific numbers, do you have a source?

As far as I can tell they started the year with ~12.5B AUM, and have lost ~30% on the year and received a 2.75B cash infusion from Citadel et al, which I assume was at a discount given their position. So my rough estimate is around ~25-35%, given the uncertainty around those numbers.

Alternatively, did Wisconsin public retirement funds make an enormous investment in AAPL right when it was about to become insolvent and had no other real options for raising money? That is, you can assume anyone investing in that circumstance (like Citadel into Melvin) would demand a huge stake in return.

> Melvin already cut its losses this week, as was widely reported.

This was widely reported, and Melvin might not be the big bag holder anymore, but the short interest hasn't subsided. It's actually grown.

The squeeze never happened. The squeeze never happened.

https://www.zerohedge.com/markets/we-have-some-bad-news-game...

The article above written by renowned financial journalist... Tyler Durden?

So Melvin Capital got a few billion from Citadel after the reddit short squeeze started? And we're not supposed to think anything about that is shady?

And there is no proof Melvin cut their losses. There is no way to know for sure. The shorts are still there, whether they're Melvin or anyone else.

I didn't say anything about what you're supposed to think. You can definitely believe it's shady.

As for the proof about cutting losses - no, there's no proof. You can question every single fact you read about this story in the media if you want. The reasons most people have given for why they would lie about it instead of just do it kind of strain credulity for me. There are a lot of conspiracies being spread around with much regard for whether or not they are true instead of whether they could be true.

Logic says they are lying or trying to leave an impression as if they cut their losses, since if they truly already cut their losses why were they so adamant about telling their story and trying to get people out of the market. If they cut their losses they would have no incentive to tell people about it, they would just not comment and go on to new ventures.

Here's an intereating tweet and the associated Reddit thread.

https://twitter.com/justinkan/status/1354853920762253315?s=2...

https://www.reddit.com/r/wallstreetbets/comments/l747eg/cita...

This seems, at first glance, to be clear and blatant market manipulation by Citadel and Robinhood.

The thing is, all brokers are doing the same. How on earth is this possible?

I'm with Ally bank and right now they're telling people that it's their clearing firm (Apex Clearing Corp) that's blocking buys of GME and some other stocks.

Could it be that other trading platforms use the same clearing firm?

Apex is the clearing firm for Tastyworks and Webull too. I got an email from Tastyworks about restrictions (which just got lifted).

Interestingly, I bank with HSBC and I could buy and sell GME and AMC the whole time outside of when it was halted. I called them to ask why and they said they clear their own trades. Not sure how exactly that is possible though (if anyone can explain...)

Typically when you buy/sell a stock, it's not moving anywhere. Robinhood would try to sell the stock to someone on Robinhood buying the stock first. The big banks and brokerages have enough people buying/selling within its platform that it has enough supply to trade within itself.

For a small brokerage, they would have to work with other brokerages to help them trade, as they wouldn't have enough shares they already hold to trade them within their users. So Robinhood asks Apex for more shares, and Apex has to ask HSBC/Fidelity/JPMC/Goldman if Apex doesn't have any. At some point, all the other institutions also don't want to give up their shares because they need to satisfy demand from their own users. Trading with other firms tends to be really slow too.

It's a short squeeze too, by definition there's not enough stocks available for everyone who wants to buy. So some firms ran out and couldn't get more.

You may want to look up Reg NMS and the various rules about internalizers.

You left out the exchange. Why can't the small brokerages go directly to the exchange?

Defeats the purpose of using a broker/clearing house, there are products that let you trade on the exchange directly. RH probably figured there's no point in integrating all the way to the end if no one would normally use it.

Same with doing your own clearing, there's complexity involved with clearing and maybe you don't want to implement it all yourself when someone does it better for cheaper.

It's like asking why we don't all program in assembly all the time, or even have the option to mix assembly into our high level code. It's just nice having layers of abstraction that handle the annoying stuff for you, even if there's a minor cost. Why have complexity you don't expect to need?

Robinhood uses Apex behind the scenes too. Apex is probably having trouble clearing these trades (given how one sided it is) and just decided to not trade them, resulting in the butterfly effect of multiple brokerages not trading these stock.

>Apex is probably having trouble clearing these trades (given how one sided it is)

That's... not how stock markets work. For every buy there must be a seller. If there are too many buyers but not enough sellers the price simply goes up.

Sure, that's what would happen if buys and sells could reasonably be paired up. Robinhood/Apex could've just kept these buy orders open until it found a seller at any price and closed unfilled orders at the end of the day. That would probably be less preferable to all involved as I doubt these people were placing limit orders.

I don't think they use Apex anymore.

https://blog.robinhood.com/news/2018/10/9/introducing-cleari...

trading212 wouldn't let me buy, but fairtrade app did.

Cartels... It's got Anti-Trust written all over it. Not sure the US will do much though.

Jesus, it kind of shows how corrupt the US really is. We're all basically watching a bunch of people commit crimes that from my quick Google carries a max sentence of 10 years with billons of dollars on the line and we're all pretty sure they're going to get away with it.

Though, I do think if Biden makes sure the justice hammer comes down on this, it'll win over a bunch of Trump supporters.

It was a strong anti trump sentiment that united the democrats but it’s easy to forget that Biden is still met with some caution in his own party as being the establishment candidate, not necessarily a corporate stooge but no Bernie either, it would do more to dispel that within his own party.

Ẃhy would his own party be pissed that he made sure the justice department properly investigated bankers manipulating the market? Honestly, I think this is one of those issues that will unify everyone to a common cause, god damn rich people screwing the little guy.

Read my comment again.

Yea. I misread, my bad.

This. It's been an incredibly eye opening week. From news trumpeting that Melvin Capital closed their short position [1] -- which is questionable at best -- to all major US brokerages preventing retail traders from participating in securities that they shorted. This is so surreal that it almost seems like a conspiracy, but i think in reality it just shows how corrupt the market really is and how much power these hedge funds hold. I'm eager to see the fallout from all of this and if SEC will take action. I didn't know that hedge funds aren't obligated to disclose their short positions on 13f. Maybe, for starters, the SEC could prevent them from hiding their shorts.

[1] https://www.reuters.com/article/us-gamestop-melvin-idUSKBN29...

> Though, I do think if Biden makes sure the justice hammer comes down on this, it'll win over a bunch of Trump supporters.

I'm not sure anyone who still can be considered a “Trump supporter” is swayable; on the other hand, if Biden is seen as politicizing prosecutorial decisiones it’ll lose a bunch of Biden supporters.

It's also questionable how much influences Biden’s preferences have at Justice since his AG nominee hasn't been confirmed and everyone at levels requiring Senate confirmation there is a Trump carryover (though, to be fair, the Acting AG was appointed from within by Biden and wasn't out of order of seniority, IIRC, so he has exert what influence he can to select leadership given the constraints he faces.)

Reuters are claiming short sellers have lost 70billion usd, when they are the sums involved, anything is possible.

There was someone claiming to be a robin hood employee, that the White House got involved. Obviously I would take this with an extreme pinch of salt but with those numbers there is every motivation from the powers that be

If you’re talking about this article https://www.reuters.com/article/us-retail-trading-shortbets-... the 70 billion number is loss on _all_ short sales YTD. GME is about 1 billion of that total.

They all used the same logic to make this decision, that's how. They all saw suspicious patterns of trading by retail customers and made the typically overly cautious decision to restrict trading until they receive guidance from the powers that be.

You're going to have to source that claim, friend. There is nothing more fundamental than supply and demand. The action to allow people to sell but not buy is not overly cautious, it's obviously advantageous to the short interest.

Vanguard has not blocked anything. Just wanted to throw that out there as I really like them as a company.

Also see GME in Fidelity

Right. I was able to buy/sell Nokia (NOK) and Build A Bear (BBW) today with no trouble. However, a colleague showed me they blocked BBW sales later (screenshot).

Other brokers are also blocking buys on different tickers. E-trade prevented me from buying $GME, and looks like they've blocked $AMC buys too.

https://twitter.com/AstralTrading/status/1354884246389874689...

That's insane, tried to buy GME on robinhood and my trade just got cancelled...

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