Robinhood’s plan to “democratize finance” hit a GameStop-shaped speed bump
arstechnica.com
arstechnica.com
I've left a subthread here which specifically references this article and wouldn't make as much sense in the other thread.
Only the incredibly naïve actually believe this, and shame on Ars Technica for not annotating it with a big asterisk. Their short position is (present tense) worth billions and the ~$1mil they'd be fined for lying by the SEC is far outweighed by the potential gains of a crash back down. This is what happens when white collar criminals don't go to jail, kids.
But this seems like a shill article in general, as there's nothing mentioned about the fact that Citadel makes up more more than 35% of Robinhood's revenues[1]. Yeah, I'm sure it was "liquidity requirements."
[1] https://www.ft.com/content/4a439398-88ab-442a-9927-e743a3ff6...
Substantive critique is always welcome, but insinuations of shilling without evidence are against the site guidelines. That particular guideline is an important one so please follow it (along with the others!)
I'm hardly an expert at shorts and options, but when I see people posting stuff like that, I start thinking that the most plausible explanation for the outrage is that things are more complicated than the "we're gonna put this fund out of business!" crowd expected.
If we're speculating about people's motives, let's look at everyone ;)
I'm just amused that the motives of the folks making huge money off of this are going largely unexamined. If you wanted to talk me into buying Gamestop now, you'd have to convince me that it's not just a way of cashing yourself out.
(I also think it's a little dirty, at best, for any experienced investor to be talking newcomers in to buying this shit at this point.)
I've been hearing plenty of accusations of pump and dump, with no further examination. So I don't think that opinion is underrepresented. It is effectively noise anyway, because the same can be said of any investment.
People have been trying to pump this trade since at least September: https://files.catbox.moe/2cp8f9.jpg
There are zero (EDIT: very few) clearinghouses in the cryptocurrency world. That's...almost the point.
But I found the prior comment about cryptocurrency people having particular expertise here laughable... plus rWSB aggressively prohibits any mention of Bitcoin, I don't think it's accurate to suggest that there is a lot of overlap regardless.
To do this Robinhood has to post collateral with the clearinghouse (DTC) during that time. As BME volatility exploded the collateral demanded of Robinhood skyrocketed.
You are telling me there is nothing RH could do to cover the collateral?
This is what has me slightly skeptical. Seems like the bailouts are no problem when it comes to the major players but liquidity for plebs? Nah.
I highly doubt either of those transactions happened at the press of a button, though. We just didn't see whatever behind the scenes drama occurred at Melvin.
Melvin was also bailed out by Stephen Cohen, who the Melvin founder worked for. Cohen likely believed in the founder and already knew enough about their positions to be able to make such a huge investment in such a short time frame.
Equity investments typically take too much time to complete due diligence when your firm is drowning in a hurricane. Robinhood was rumored to have tapped all their available credit lines for $1B before they ran out of cash. I suspect we will read about an equity infusion in the next few weeks, if they make it that long.
I think we need to emphasize and dwell on the fact that this phenomenon is all grounded on baseless internet rumors.
If you want to make massive bold claims that there's a conspiracy you need to provide evidence, not opinions.
Practically a rounding error for these folks
There's a perfectly rational explanation for what happened yesterday that is backed up with an understanding of how the financial system actually not works, not the pretense that is usually pretended by the public, and that doesn't involve a nefarious scheme to manipulate the market. Don't let your desire to vilify Robinhood and the financial system in general blind yourself from evidence to the contrary.
Let's be fair: it only occurred on zero-commission platforms (Fidelity had no problems, for example) that sell their order flows to hedge funds -- some of which specialize in shorting. Is it really likely that they just all experienced "liquidity issues" at the same time and had to block just the buying of $AMC and $GME at the same time?
How do you mean? I don't quite understand in this context.
RH wasn't the only broker to suspend trading in GME et al. Are all of the other brokers as equally beholden to Citadel?
EDIT: I'd be more happy to believe in the possibility of a conspiracy at the DTCC level, but even then the logic seems fairly sound for collateral issues here.
Let's count all the people that would need to be involved in this conspiracy. First, obviously the Robinhood executives themselves. Second, the portfolio managers at Citadel's hedge funds who would be holding the large short position. Third, the market makers at Citadel Securities. Remember Citadel Securities is a separate company, with a legally mandated Chinese firewall prohibition them from discussing operations with the hedge funds. Fourth, the other internalizers that Robinhood uses, like Virtu and SIG, who would clearly wonder why the order flow they're paying for went dark.
Fifth, the DTC clearinghouse. If Robinhood made a false claim about its collateral at the DTC, they'd clearly either correct it if they weren't in on the conspiracy. Sixth, JP Morgan, Goldman Sachs and other banks, that extend Robinhood credit. Obviously if Robinhood wasn't actually near the end of its credit line, they would have no reason get involved with the lie.
Seventh, Robinhood wasn't the only broker to restrict trading. So clearly in this scenario Citadel must have colluded with Interactive Brokers, WeBull, Apex Clearing, TD Ameritrade, and Merrill Lynch. All of whom restricted trading at the same time for the same stated reason. Eight, the SEC, who has transparent access to the collateral position of licensed brokers, and would be able to reveal the lie, unless they were in on it.
So let's add all that together. A massive lie involving hundreds of people between Robinhood, Citadel Investments, Citadel Securities, Virtu, SIG, JP Morgan, Goldman Sachs, the DTC, the SEC, WeBull, Merrill, Ameritrade, Interactive Brokers, and Apex Clearing. Among which any single whistle blower could easily unravel a paper trail a mile long.
And why would they even do this. Citadel Securities makes $6 billion a year from its. Citadel's hedge funds have $30 billion under management. Even if they were at risk of losing their entire $2 billion investment in Melvin, that's still a drop in the bucket. Certainly not worth risking the entire company in harebrained conspiracy.
Is it possible? Sure, a lot of things are possible. But it's a pretty outlandish claim, with zero evidence to back it up. About on par with typical QAnon fantasies.
It is definitely possible that they were insolvent for a moment yesterday, but most likely due to wrong risk management on other parts (margins etc) of the company.
Collateral requirements have taken down brokerages far bigger than Robinhood.
> money market barely moved yesterday (no substantial borrowing)
Robinhood borrowing its entire market cap fifty times over wouldn't move the money markets. The U.S.-dollar money markets are trillions of dollars deep and global in scale. (To say nothing of the unusually-liquid times we're in.)
Also, where were the market movement indicators that signify billions in transactions? Who were the sellers, who were the buyers?
Until they show receipts, I would be very skeptical of this statement.
Most likely, they are playing word games with "got out of short positions" phrase.
If someone is telling you that Melvin is still in their position critically ask why. One explanation is that they are ignorant another is they gain in some way from that narrative.
https://www.morningstar.com/news/marketwatch/20210128440/lar...
Did they sell it all on one transaction? or multiple transactions over multiple days? weeks? months? How does companies normally wind down positions?
Execution traders (and algos) entire job is to get in/out of large positions with the minimum amount of slippage. They due this by a lot of different techniques but at the minimum they will break up the position into lots of small orders across a variety of exchanges, dark pools, partners and other venues. Good execution traders will use their volume to create momentum swings in the symbols they are working on to get better prices than they would with small volume (running stops, filling in thin layers, etc.). It’s a constant cat and mouse game between them and the market makers.
But you don’t need to be a good execution trader to unload into GME right now, its effectively free for a manager like MUST. There were price levels getting cleared of hundreds of thousands of shares at a time yesterday. All this retail volume and the blown up price means that someone wanting to clear a ton of shares has ready buyers who are not price sensitive. And with so much ROI on their books they don’t need to sweat small slippage like they might in a less overbought symbol.
I log in today to get a chuckle, across all of my mutual funds and two stocks, only one is in the green from yesterday. Obviously meaningless in the grand scheme of things, but just funny to see on my screen.