If a broker can't do their job they should be forced to shut down completely until they can.
Its pretty clear they don't have the liquidity/assets to handle their customers transactions. Letting brokers manipulate asset prices so they can avoid shutting down is a dangerous precedence to set. Really hope IB/RH and everyone else involved gets blown up by this.
Put another way, just because they have to halt buying, they don’t owe it to their customers who are holding to not allow other customers who want to sell to do so.
I think that shitstorm is preferable to allowing brokers to manipulate asset prices to protect themselves.
I don't think that "biting off the nose to spite the face" is the approach I would prefer when it comes to my money. And, I think, a lot of people would agree with me this.
Also, the whole "protect themselves" line sounds like pure outrage without thinking about the actual consequences. If your brokerage doesn't "protect itself" and implodes, what do you think is gonna happen to the value of your assets sitting in that brokerage (as well as the assets of everyone else in that brokerage)?
The idea that a broker going under wipes out all its members assets is just not true. MAYBE some stuff in flight would have issues. All the capital requirements and regulations are designed specifically so the brokerage fails first before customer assets are at risk. And again, still SIPC insured.
Driving GME price down before all these trades clear likely kills Robinhood.
I fully agree they were fighting to save their life. They can't handle their customer trades they should shut down until they can.
Really they should have a system to only allow buying with settled funds. I'd be fine with that.
And Robinhoods actions affect on GMEs price was likely small. The investing world is far larger than Robinhood, and Citadels own statistics show retail investors have been net sellers of GME since Monday.
And again, every time that GMEs price crashed, Robinhood’s collateral requirements increased. Why would they try to kill themselves?
Saying they manipulated GME trading is like saying one pirhana quitting the school is manipulating the feeding frenzy.
You clearly weren’t watching the order book the second this started. The effect was immediate and severe.
While that is more than fair for WSB traders who caused this mess, there are likely many hundreds of thousands of innocent customers who may have not bought one share in GME getting the same punishment.
It might create a liquidity crunch for some people but the idea that people would only get a fraction of their account is pretty much FUD.
Would you prefer Robinhood to implode so you have to wait years to get a small fraction of your account paid?
This made what RH did look unfair, but stopping buys was all they could do.
I am tuned in enough to know there is a big difference between rolling up and asking for credit saying "Hey I've got X dollars in settled cash to buy Y. Please lend me some money." and saying "Hey I've lent out X dollars to buy Y. Please lend me some money."
They can borrow money and use that for collateral which is exactly what they did. And there is a massive world of difference rolling up to a bank/investors saying "Hey I have settled funds, I need to borrow money to post as collateral" vs "Hey I lent people a bunch of money, I need to borrow a money to post collateral".
They were told by their clearing house they aren't allowed to continue allowing $GME trades due to capital requirements, and they have to let customers unwind their positions at any time.
If they had stopped all trading of the security because their clearing house wouldnt agree to the deal, thats one thing. When they limited only one type of trading which had an asymmetric affect on the different groups trading this security, then it looks like market manipulation, sounds like market manipulation, walks like market manipulation
These two things don't seem mutually exclusive. Actually, it seems like they'd be positively correlated. If you're fighting to save your life, aren't you more likely to resort to manipulation? And certainly when the cost of fines is several orders of magnitude less than the cost of closing your position at that point, it seems downright economical.
On the contrary, it seems to me that "banning selling, not buying" could be a useful tool for helping out some hypothetical buddies who would rather that a large tranche of 115s & 320s don't end up very inconveniently in the money.
Don’t you realize how extreme it was for them to have to borrow $1B in a single day?
I wouldn't call it their house. I would call it partially /their/ house and partially a house owned by "some buddies."
Do note that RH is not the only one that paused buy trades.
What I find more suspicious on RH's part is the timing of this all. RH should have known well before this week that GME was going to be a highly volatile stock. They should have already reached out to investors and banks for credit. They should have already had over a billion lined up to take on the volatility. I can understand other brokers like TD not being prepared because they might not be used to this Reddit-driven WSB volatility. RH, on the other hand, should have been ready. They've been aware of WSB and their antics since its inception. Yet they waited until Thursday to pause trades. That's where I start to go into conspiracy mode.
Dont you realize how big a $1B credit line is for a broker with so few assets such as Robinhood?
Now try to get investors to invest $2M for half of your home, again the mirth and laughter will be rampant. Eventually you will find someone to lend or invest $700K but it will take months to close and meanwhile Robinhood is dead.
Reading closer, they supposedly got ~$500 million from its banks as loans and $1 billion from existing investors. My issue is in not knowing when this was all initiated and how long it takes for the money to go from its current place(s) to Robinhood.
Regardless, I am still learning all of this so thank you for replying and adding clarity.
They're flooded and can't handle the scenario - but they definitely can't stop people from selling because that would be locking them into positions.
I don't like RH as a company, but if they are facing difficulties, this is a reasonable thing to do.
People are giving RH heat for this most recent policy but frankly that's not remotely the reason they should be upset. I for one, basically believe RH on it. The reason 'RH' is 'shady' is for their normal business practices.
Frankly, the notion of 'free option trading for unsophisticated investors' sounds like the biggest hustle ever. Surely there are a lot of folk using it who really know what's what, but mostly not.
They destroyed their brand in one day.
If the only way for you to comply with regulations is to violate other regulations (market manipulation), you must shut down your company.
It's really quite simple.
Robinhood is like some guy driving without a license who gets pulled over by a cop and says "but I'm ineligible for a driver's license, so obtaining one would be illegal fraud, so I didn't do that". Guess what buddy, you don't get to drive.