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Comment by dmichulke | Hacker News Reader

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dmichulke

Not sure I understand:

High volume causes sudden operating expenses up to a billion? Like, they're launching more EC2 instances?

Or is that because they suffer from slippage? And if so, why don't they adjust the spreads?

And if it's slippage, why would they still allow selling but not buying?

Color me skeptic, but this makes no sense.

For now I believe they just come up with some story to mask their obvious, IMO criminal, market manipulation by being a victim themselves.

The billion is probably for the lawsuits.

Can someone with a deeper knowledge chime in as to what could have happened so that it fits their narrative?

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As I understand it, stock trades take days to settle and the brokerage is on the hook if the customer doesn't pay for some reason. When the market is so volatile, Robinhood's trading partners demand more collateral.

It’s NSCC who demands it, the central clearinghouse for all these trades.

DTCC

https://www.dtcc.com/about/businesses-and-subsidiaries/nscc

I think this is a good thread that answers some of those questions - https://news.ycombinator.com/item?id=25951475 . Also curious if there were other ways though.

Bloomberg explains the reason being the transactions clearance premium, which was increased due to the stocks volatility.

https://www.bloomberg.com/news/articles/2021-01-29/for-robin...

It’s not for expenses, it because stocks don’t actually settle (i.e. exchange cash for shares) until a few days later. But Robinhood lets customer trade again immediately.

They are financing this turnover. When volumes go huge and turnover increases, they have a lot more capital tied up in this process.

Also, don't card companies pay net30/60? So even if customers were able to pay their orders, Robinhood only receives the money in 30 days but has to pay to the clearinghouse in two days. That would wreck RH in a volatile period like this.

Did you consider they RH us trying to start a run by spreading fear that they are going to be bankrupt soon?

The trades are made with margin - aka borrowed money. Money borrowed from the broker. The broker runs the risk of being stuck with the bill for the money the lent out if clients cannot pay it back. The key issue is that rh gave margin to people with no clue, and should never have allowed margin trading to these accounts in the first place.

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