Comment by FabHK | Hacker News Reader

Comment by FabHK | Hacker News Reader

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Insightful interview.

More money quotes:

ANTHONY DENIER (CEO Webull): [...] our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it. And they simply can't afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar-- smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market.

ZACK GUZMAN (interviewer): [...] We had the CEO of Robinhood on yesterday kind of talking about why they were taking a different tact [sic] and not restricting trading because, you know, they wanted to leave it to their individual retail investors to make these decisions. Didn't want to step in and fuel into the nanny state idea. But what about maybe curbing this a little bit earlier? Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that?

ANTHONY DENIER (CEO Webull): Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions. Liquidations can happen at any time. This is general market mechanics. We have customer protections in place. We would never stop a customer from being able to get out of a position.

[...]

I think when you say the regulators stepping in, it will happen on both sides. It's going to happen on looking into should a hedge fund be allowed to get a 10 times leverage and short 140%, 150% of a company. Should that be allowed in a regular-- you know, in a healthy market.

And then, on the other side, should it also be allowed to have mob and herd mentality of rolling into stocks? And should these things be curbed? Look at the examples that happened overnight in Australia, where a mining company, GME in Australia, was up 100% overnight because people just blindly went in on anything GME without reading below the headline.

So if a new investor puts a stop loss order in at a 60% loss, brokers let them exit their position and then didn’t let them back in?

This seems unconscionable given the >300 point volatility today and the large number of brand new investors.

It’s hard to imagine how these actions didn’t benefit wallstreet at the expense of regular people.

> Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions.

This is a problematic statement. Because to sell your position there has to be buyers, and the only buyers who were allowed at the table suddenly were those who wanted to pay significantly less then the stock had recently been trading at.

> Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that?

It looked more like, what happened was you had retail investors that couldn't buy securities, but Robinhood was allowing them to sell them to make them available to customers in order to clear leveraged short positions.

Ok so let me understand. You can sell you position no problem. So who's going to buy it, if buying is not allowed?

In this case, either the hedge funds clearing their short positions, or traders on literally almost every other platform out there (I opened a few positions on Ameritrade today for example).

Someone not on Robinhood can buy it.

Right, so... the shorts that need to clear their position before the price rises further.

Sounds like market manipulation to me.

He lied. They’re forcing retail investors to sell their positions.

Brokers must often sell customers' positions if they have insufficient margin. Where did he say they wouldn't?

True, but that's for leveraged positions. So I wonder was that leveraged position or just plain "own stock" position? If the latter, I never heard about broker liquidating a position against the will of the client, when settlement of debt is not involved. Does it happen?

Edit: screenshot from reddit: https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=...

$118? That's daylight robbery. It must have been the lowest point of trading today.

In fact, when I look at the stock chart on Yahoo the lowest value $GME had was $126!

https://finance.yahoo.com/quote/GME?p=GME

Forced selling doesn't just happen arbitrarily, but precisely because the price is low. Long positions using borrowed or unsettled funds are similar to shorts in that they can be squeezed, just in the other direction.

It applies to any margin position. This can just mean trading with unsettled funds. E.g. you buy a stock, sell it, then use the proceeds to buy another stock (or the same one) before two days have elapsed.

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