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Comment by awillen | Hacker News Reader

I don't understand how they can blame capital requirements and potentially having to cover customers' losses (that was Interactive Brokers) for stopping purchases of the stock. Unless you're talking about buying on margin, there's no risk that you'd have to absorb any loss for someone who just buys a share of the stock through you with their own cash.

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> Unless you're talking about buying on margin, there's no risk that you'd have to absorb any loss for someone who just buys a share of the stock through you with their own cash.

The thing is, clearing houses expect collateral up front.

It's not a risk issue between Robinhood and its clients, its a risk issue between the clearing house and Robinhood.

I'm not saying that this what actually happened, I'm just saying that the presented argument has plausible elements.

You don't understand how trade settlement works under the hood. When trades occur, the money doesn't change hands immediately, only on the trade settlement date a couple days later. Before the trades settle the clearing house needs to be reassured that the brokerages actually have the money to settle the trades (brokerages have gone bankrupt before), so they make the brokerages post collateral. When volatility goes up the clearing houses demand more collateral to deal with the increased risk, and if Robinhood doesn't want to pay it then the clearing houses won't let them trade.

In other words, even if the end user isn't using margin, there is "margin" happening in the background between the clearing house and the brokerage.

>Unless you're talking about buying on margin

I can assure you, there was a lot of margin purchases happening.

Then why not do what TD did and restrict buying on margin? Why tell everyone on your platform that a "stock isn't supported"?

I am imagining their platform isn't that robust and it was the easiest way they had to shut it down temporarily.

RH doesn't know who's buying on margin?

That's also not my problem as a RH user that's not buying on margin.

Sure. I think there is a lot of incompetence at play here.

Sure, but why are they using that as an explanation for shutting down all trading, including that not on margin?

...because that’s not the true explanation!

but the actions were taken against all buy orders, not only buys on margin.

Ok, as a customer why is that my problem? They’re not providing the service they promised. This is absurd.

Because they are on the hook if their customers can't pony up during a margin call. And there are a bunch of teenagers looking at six figure debt when things crash.

Again, this is the difference between a big boy brokerage and a free app. And them providing services they weren't capable of weathering was probably the original sin.

I dunno man, the big boy brokerage of IB did the same thing

If you read the various user agreements, you can see they have nowhere promised to execute 100% of possible trades 100% of the time, and explicitly give themselves the option to make the sort of changes they've made.

Also in the event that everything is true and straightforward, why wouldn't they say that at the start (and through the whole day)

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