This sounds the real reason that RH limits the trading of a number of stocks today? If so, why didn't they give this straightforward reason? Instead, they resorted to vague excuses like misinformation and "for your own good".
Few people are actually getting this information. So... its not horrible press for them.
And if they say this. People would sue like MAD. Because it would be "RH didn't have enough money to trade on a thing they allow trading on. Therefore we missed out on potentially 5 million in profits when I was unable to trade ..." and so the lawsuits begin.
Oh, and I heard they were supposed to IPO this quarter and I can see this event single handedly completely derailing that with how many users they are going to lose.
Communications were undeniably terrible. That said, I imagine they have a limited number of people on staff with deep clearing knowledge, and those people were preoccupied. Aviate, Navigate, Communicate.
Since you just gave us the basics in like 5 minutes, is it too much to expect that people whose job it literally is know that too? Especially the ones doing communications.
No, I don't think so. I don't know when they drew on these lines of credit. Maybe that was still up in the air when the first announcement was made. No financial institution wants to say "we ran out of capital" during market hours.
It's very clear to me that insiders saw the how much hurt this short squeeze would bring the financial markets, and they all coordinated to relieve it. It's no coincidence so many hedge funds started degrossing, futures were down, and the VIX spiked to the moon exactly as $GME's price started accelerating...
...once brokerages bricked buying the VIX collapsed and markets rose.
Infinity squeeze averted and all's well in Wall Street. No big institution is likely at risk anymore and retail traders along with smaller funds will be the bagholders.
It would be quite odd to halt trading on a stock market-wide because a small number of brokers run out of collateral.
IB charges for orders and doesn’t sell order flow but also cut off GME. What’s the theory around that broker?
"... we are concerned about the financial viability of intermediaries and the clearing house."
https://www.russellclarkim.com/marketviews/russell-clark/201...
> There is no doubt that a default by a clearinghouse member is more likely when initial margins are low and may be caused by a sharp unexpected move in the underlying markets. In the event of a default by one member this could trigger a chain reaction. Firstly, initial margins will rise in an event of a default, which will restrict other trader’s ability to participate in the market possibly acerbating the move in the underlying markets. Secondly, if the defaulting member was a particularly large player in one asset (likely, as this would be the cause of the default), the members with opposite positions may not receive variation margin and hence will become unhedged at the very moment they need hedging. Thirdly, the clearinghouse may well have to recapitalise itself from the surviving members. Major clearinghouse members (including JP Morgan) appear to be seriously worried about a clearinghouse problem after the default by a member of Nasdaq Clearing AB ..."
Be careful out there. :-)
Maybe you are not aware but Melvin lost almost 3 billions and was bailed out by Citadel and Point72 and probably they will loose even more and go bankrupt if they don't stop people buying GME.
Do you think these guys want to leave all that cash on the table and play fair? If you look at Point72 owner(Cohen) you see some really "interesting" things.
Maybe. But if this is a trolly car problem it's clear they made the call to let the train run down the track with the retail investor when it should have been the track that eviscerated Citron and Melvin and all their backers.
Big institutions that made the bad trades should have been the bagholders.
I would not put a fintech in charge of said trolley.
Maybe we all should stop to consider whether free & frictionless are worthwhile aspirations. Ice has a lot less friction than concrete but I certainly don’t want to walk to work on it.
Maybe a little bit of friction in our news, investments, social media, communications, etc. is a good thing. Give our brains a chance to digest information and let the intelligent & cooler minds prevail rather than impulsively smashing the share or downvote button.
What WH has democratized is now giving retail investors the opportunity to also lose money with active trading.
I find it hard to believe that anybody would find it hard to empathize with the fact that your company failed to predict a wild meme craze leading to an overload of your systems.
Now that its said, it would have made more sense for Robinhood to just nuke its servers and return 500s to their users rather than deal with this whole mess.
Option 1: The public believes Robinhood is part of the larger finance industry cabal and will screw you over to protect their buddies.
Option 2: The public believes Robinhood is in over its head, it doesn't have the financial backing to do the job they are given, and it can go insolvent at any moment.
Considering the reputation and expectations for the finance industry, it might actually be better if the public believes option 1 even if option 2 is the real story.
As it is, their customers got so pissed at the option one assumed story that they had to put out another post saying it’s option two anyways. Now they probably have the worst of both worlds.
It's not a moral judgement. So to answer your question, hedge fund order flow is considered highly toxic. Which is why Citadel Securities pays to interact with non-toxic retail flow, instead of toxic hedge fund flow.
In this specific case, Robinhood often have worse price than NBBO, so they get to do liquidity arbitrage in addition to the less toxic retail orderflow.
The manipulation isn't different from insolvency
If they go insolvent, I still own the things I own, but if they're screwing me over, there's no point in owning thjngs
This is based on a lifetime of observations without a single counter example, so it is still anecdata but quite a bit of it.
They fucked up cookie management and pulled the trigger on it early this year, in the middle of a pandemic. specifically around iframes. I got stuck with the ass end of that at my company. We worked in education. There were many healthcare software people that were also pissed about that.
Sure fucked up cookie tracking for adds tho!
https://blog.robinhood.com/news/2021/1/28/an-update-on-marke...
But the conspiracy theories are more fun, so nobody really paid attention.
That post was at best misleading.
[1] https://blog.robinhood.com/news/2021/1/28/keeping-customers-...
Why allow so many new users to buy those positions before they blocked buys if this was coming? I mean, the prices were elevated before it got to this. Seems like a situation of let's ride the free customer acquisition and figure it out later.
They happily took the huge influx of new users that had no knowledge of this. And many got screwed. They couldn't average down on their position. And a ton of buyers were removed. So the price got out of control. Many panicked because of it.
I'm not on RH but added more at 170 and it came with several partial fills of 1 and 2 stocks. That was RH users getting screwed as a ton of buyers were removed. Trading was not halted on the downward spiral.
They could have said - hey guess what - 750k RH users (whatever it is) that own GME cannot buy this stock, so consider this before you sell. Some kind of warning that passed the attorneys. How could they not see this coming?
Any way it went down - RH is done. I hope they "pivot" into a worse situation.
A company in panic fire extuingisher mode has to put out some type of announcement. RH did. Twice in one day. I can believe the first one was a canned response, and the second one looks like a more thoughtful letter.
But have you ever thought how much internal wrangling, or how many draft revisions even such a short piece has to go through? The company has to be very careful in what they say in their comms - plus even more cautious with their phrasing and wording used. These types of comms will be read by arms chair lawyers and real lawyers alike. The latter will look for opportunities.
The former will read it like they were the devil's advocate themselves.
Corporate comms teams have to put in a lot of effort, and go through numerous rapid iterations, to make sure their published material is factually accurate and anodyne. In a crisis situation, even more than usual.
As for conspiracy, I'd venture to guess that inconsistencies/hypocrisies and opacity turned people into cynics. I'm not saying RH is hypocritical, by the way. Instead, the hypocrisies of other platforms made people trust RH less. For instance, I saw numerous accusations that RH was helping wall street by limiting buying but not selling.
Plus, they never give a reason in this. They make vague references to things that could be a reason, but don't clearly state what the reason was. Leaving it unclear like this is horrible PR, and will continue to let the conspiracies spread.
They had a chance to educate people, but nah can't do that.
A well-known investor with integrity publicly mentioned personal issues with the co-founders' integrity in the past.