Analysis: Robinhood protected from lawsuits by user agreement, Congress
reuters.com
reuters.com
So if this is possible, I expect tens of thousands of arbitration cases to be filed by Monday.
1. https://web.archive.org/web/20200217224304/https://cdn.robin...
* I participated in the IndieGoGo arbitration process. Our fee was $250 while theirs was uncapped with most (public) estimates being in the $10-12k range. With a few hundred people, it starts turning into real money for them.
Ah, that sounds like something that should go nation-wide.
Wait, what? Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users? This is absolute madness.
>However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts.
As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades. In that case I don't see how it's any different than a service outage causing you to lose money, but you don't have a SLA in place.
That's not true, they only blocked trades on those specific stocks. If it was really a liquidity issue then they could have rate limited all trades equally regardless of the stock in question.
This isn't going to be an obvious clear cut case, and there will be plenty of gaslighting as part of the TENS of billions of $ on the line.
If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.
https://finance.zacks.com/tax-rules-use-proceeds-stock-sales...
https://www.fidelity.com/learning-center/trading-investing/t...
https://finance.yahoo.com/video/heres-why-robinhood-restrict...
>And we just can't afford-- well, we're not a clearing firm, but 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.
Edit: Answered in another chain.
Because DTCC requires cash collateral while the transaction is settled whether the transaction happens in a margin account or a cash account. There's no distinction from DTCC's perspective. DTCC (reportedly) increased the collateral on $GME transactions to 100% of the transaction price compared to the typical 1-3% of the price.
Citadel would know before anybody else in the market that the massive number of buy orders from RH had just gone to zero. They would also know that sell orders were still coming in.
This would allow Citadel to profit massively on the backs of the RH customers even if there was no direct collusion.
The thing is, RH isn’t stupid. They knew that Citadel (their biggest customer) would see that orders went to zero before anyone else and could move accordingly. RH didn’t need to explicitly warn Citadel in advance - the very nature of their relationship meant that they would be told in advance.
Can you explain the actual trade you are suggesting happened?
Very probably. The general principle of Article III jurisprudence is that you have to demonstrate concrete, particularized harm to bring a case, not generalized, theoretical harm.
If your allegation is that your harm arises from "I could have made a killing if I bought and sold the stock at appropriate times," well that is theoretical harm (especially when you undercut buy alleging that you could have done so on other platforms). You'd probably have to allege that you attempted to buy (alternatively, sell) the stock and Robinhood prevented you from doing so, but the fact that you signed a contract saying that you acknowledge that Robinhood can prevent you from being certain stocks is going to be a challenging hurdle to overcome.
Much of the nice and fast experience that Robinhood offers ("Just signed up? You can start trading!", "Initiated a transfer? Start trading now!", "Just sold something? Rebuy something else immediately!") are all powered by the fact that these are all technical using margin.
Of the stuff I see on court listener:
* 3 don't have documents available (and I'm not going to bother signing up for PACER just to find out)
* 1 has a claim predicated on "I could have bought or shorted GME" (yeah, not gonna fly)
* 1 has a claim predicated on "the value of GME stock fell, causing me loss" (doesn't mention if the stock was actually sold, so it's purely paper loss, so really not gonna fly)
* 1 has a claim predicated on "I tried to buy, but couldn't" (best chance of succeeding, but I think they're still screwed anyways)
It's a good message board power-up, I guess.
"I intended to buy at a higher price in order to manipulate the price of an asset well above its value, and was harmed by being delayed until a later time where I could buy it at a lower price" -- not going to fly.
If RH is inadequately disclosing the risks of margin trading then some of their customers that had positions closed due to margin requirements might have cases.
"I was harmed because I was delayed from buying at a higher price and instead could only buy at a lower price later!" -- only being able to buy at a lower price later is only a "harm" in the sense that it prevented price manipulation.
Like if I'm fishing, I might not catch a fish that day, but if you collapse the pier I'm fishing from then you've concretely caused particular harm to my chances of catching a fish?
Answering this sort of question likely requires digging through cases at the district and circuit court level to find people who made this kind of argument, and seeing if the court bought it or not. I'm not paid to do that, and the people who are are paid big bucks to do so.
But my suspicion is that you have to draw a pretty strong link between the actions of the defendant and your losses, to the point that you really no had other option than to eat the losses. In the case of the pier collapse, you might be able to swing that if there were nowhere else you could fish from. But in the case of Robinhood, I'd be surprised if you could sustain that argument, especially because you've signed this pesky contract.
This is an easily quantifiable and concrete claim that might be brought up by every Robinhood user with cash in their account.
They would be safer if the stock had continued to drop.
Yes, because you'd have to prove that Robinhood volume alone caused that drop in price. Robinhood isn't that big, and GME volume was crazy on Thursday.
It's equally likely (and equally impossible to prove) that Robinhood saved their users money by preventing them from investing in a stock that was already up 500% and clearly overvalued relative to its fundamentals.
This is the part that gets me about this: even now, after the mania has passed, everyone still thinks that GME was somehow a "sure thing" investment driven by a clearly incorrect understanding of how short trading works. And even now, after the magical short call rapture that was supposed to have come on Friday never materialized, people still want to believe that it would have kept going up and up and up.
Guys, it wouldn't. It's a bubble. They pop. Everyone trying to buy at the peak was making a terrible investment decision.
[1] Obviously people are taking out new shorts like crazy on this stock given the bubble.
The 1000000-dollar question is “when”.
Zerohedge (banned here) has been forecasting the pop of SPX and Nasdaq for several years now...
"but we could have driven the price up by cornering the market" I hear RobinHood/WSB users say.
Maybe, but that would be illegal market manipulation. So if your case is that you lost out because RobinHood wouldn't facilitate a crime, you have a poor case.
Every time artificial limits were imposed by RH, the price dropped in __all__ the restricted stocks. That is when they restricted shares to 0, or to 2, and subsequently to 1, and again to 0.
On Friday, there were puts expiring and HFs stood to lose a lot, they didn't, and the answer is obvious as to why.
What does make sense to me is that cutting off a substantial amount of retail flow would reduce buying pressure, causing all market participants to regain at least a little confidence in a reversion to the mean. It just seems pretty tinfoil-hatty to me to view this as some sort of elite cabal, as if RH and Citadel were somehow the only participants who could effect price changes.
I wondered if it was autocorrect but it's all over reddit too.
As best as I can see, they're saying the price falls if hedge funds decide to lower the bid price. That doesn't make much sense to me, but I'm not (quite) all knowing so...
Reopening auctions concentrate trading volumes. This may look more suspicious because volume is so concentrated, but in reality they give about five minutes for many participants to join and it all executes at one price. Prices I see for reopenings are approximately
330 290 265 226 170 140 120 141 170 210 216
The idea that the 120,140 were lower than "market prices" is solidly in tail-wagging-dog category. GME sold off hard, yes, but it was over the course of almost an hour and with substantial trading across the entire price range. This is natural when any imbalanced order flow has previously pushed prices and then subsides.
Note that 120 was the low and prices retraced through about half of the prior range. That retracement started at around 11:20 ET. Do you know when RH or other brokers had opening buy orders blocked and subsequently unblocked? Given that RH needed to secure cash for DTCC'S requirements, I expect that retracement was during the blocked period still.
Overall this still looks like tinfoil hat theory from WSB. Volatility looks crazy and it's easy to see demons in the shadows.
https://www.reddit.com/r/wallstreetbets/comments/l9auf5/impo...
https://seekingalpha-com.cdn.ampproject.org/v/s/seekingalpha...
The description of a short ladder attack from 2014 strongly implies that the short party is attemping to manipulate a stock from its prevailing fundamental value. There is a key difference in that GME's fundamental value is nowhere near the $300+ range that it was trading it on Thursday!
There need not be a misinformation campaign or "attack" for well-capitalized fundamental traders to see opportunity to sell into this. Especially after seeing the capital crunch nailing retail brokers.
https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
I remember some years ago, a normal banc transfer needed always 3 working days (so 5 over the weekend). Then came the crypto hype and the time dropped to less than a hour, even for normal people. I wonder if we see something similar here in future.
Also some crypto trading platforms, started to trade with stocks in different forms. I wonder how this will play out in future. I think traditional exchanges have to move forward fast now.
The EU is gradually forcing its members to do T+1 and eventually (I think decades in the future) wants same day for most products. That reduces risk and it makes the market fairer (RobinHood have had cash flow problems they wouldn't have had with T+0 settlement and the big boys don't have to worry about that).
I guess we have to wait. Some of these places are still using COBOL, a language first introduced in 1959!? That's how complex, legacy, under invested etc many back office setups are.
T+2 has been around since 2017, not for 100 years. It was T+3 before that in the US. Before computers were in use, I believe it took 2 weeks and was gradually reduced to T+3 during the 70s and 80s.
I think I was so lucky to fall into mostly doing front office. Everything back office is like legacy software only it's people and business processes.
Good knowledge, if never have guessed it was so recent!
Would you be surprised to learn that the exchanges switched to using dollars and cents for quotes and trades only in the 1990s? Prior to that it was dollars and fractions of a dollar (like 1/8, 1/32, etc). Strangely enough, all the fractions used were powers of two and thus could be represented exactly in binary. Now that we use dollars and cents, you don’t get IEEE754 floating point representations for all trades. Progress!
It's just because because the Exchanges are lazy and did not care until now.
We shouldn't try to shame or label users without at least trying to help first. Try to improve a situation and not make things worse. That way HN gets better.
Furthermore, AFAIK it’s not that something like “market manipulation” is illegal - it’s usually more complex than that, and might only be illegal under circumstances XYZ.
It’s tempting to read laws as if they’re written in plain English, but it’s really more like a specialized dialect where words and phrases have different (and often complex) meanings.
RH CEO’s denial said they made the move to protect the firm and their customers, but blocking buying and selling would’ve given them the protections without the risk of causing a change in the price. So it’s hard to believe that RH’s intent was anything but pushing the price of GME down to cover their customer’s short position.
Again, it's fine to do things that cause stock prices to move. That robin hood could have reduced their functionality further in order to affect the stock price less is not relevant. If they have some duty to go out of their way to minimise their impact on stock prices, its above and beyond regular market manipulation.
Adding a static check of holding was likely much more straight forward.
In traditional Robinhood-style, this decision prioritized growth (allowing new users to still sign up and buy)
I guess a different alternative would have been just selling as much GME until they reach the maximum they could make the obligations for, but then it probably would have been considered less "fair" (if one person could buy 1000 shares, and then no one else can buy any).
You may not agree with Robinhood leadership, or Robinhood as a company (I know that I don't), but this can really be thought of as a #hugops moment where they had to figure out how to track down and address the root of these (multiple) issues in real-time. They most definitely did not come out with the "best" solution.
That'd at best, prove harm, which is a necessary but not sufficient condition for a successful lawsuit. You'd also need to prove wrongdoing, which is hard because they seemed to have acted so they can fulfill their deposit requirements.
FTFY
I like how you trivialize it. Didn't they lose a ton of money, potentially their savings, because "their broker didn't accept their orders"?
Repeat that several times in your head, how does it sound?
This case will be a waste of time though.
The broker has to offer best efforts, but if something goes wrong and they can't execute the order then that's tough.
Even if that weren't true, this case hinges on whether those orders would have driven the price up (it didn't move much either way AFAIK). So to make the case, the class have to collectively admit to market manipulation. RobinHood stopping them was like a taxi driver refusing to drive robbers to the bank, the robbers don't get to sue when their dastardly plot is foiled! Or they can sue, but they'll lose and open themselves up further to prosecution!
Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too.
This will be fascinating to watch. Can the repair the brand damage? I’m skeptical.
Is there any similar scenario that has occurred at another brokerage firm in the past that might leave clues to examine to understand potential user actions here?
If you are/were a Robinhood user: https://www.finra.org/arbitration-mediation/initiate-arbitra...
just do a web search for "arbitration backfired"
you'll find this and other interesting cases :)
I thought it is arbitration (which is less effort than a court case)
I’d even contribute financially to have such an app built, because if FINRA and the SEC won't act (no surprise!), citizens can and should.
Edit: upon looking at some aggregate data via OCC, appears I overestimated savings.
https://www.google.com/amp/s/www.cnbc.com/amp/2020/08/13/how...
It’s free right up until the point they decide to charge you 100% of your money.
And some of them (Fidelity, Vanguard etc.) didn’t pull trading when it got volatile. They also have far more stable platforms.
The brokers you’ve listed have more complicated user interfaces than the casual trader would care to learn about. Fidelity and Vanguard also probably care way more about their reputations than to gamify their platform like RH does.
Indeed, it's been educational about which brokers are using other clearing houses (sorry if I get the terminology wrong), and which are direct.
But then badly behaved businesses like Godaddy don't seem to suffer or go out of business, so I suspect Robinhood won't have too many long term problems.
Wait what? Is there a list somewhere? AFAIK interactive brokers (which doesn't engage in PFOF) also shut down trading.
A bunch of others had a problem when Apex Holdings told them to restrict trading (or something along those lines).
[1]: https://investorjunkie.com/stock-brokers/broker-clearing-fir...
Also, Robin Hood - the irony. They are clearly for the rich against the poor. More like the sheriff of nottingham!
Maybe because there's already a high barrier to trading US stocks (or stocks in general), so there wasn't enough people piling on to strain the brokerage's balance sheets?
Citadel is an execution broker. Their job is to match buyers and sellers.
Apex (in these conversations) is a clearing broker. Robinhood is its own clearing broker. Clearing brokers are responsible for ensuring that money and stock actually changes hands (this takes 2 days, but all of these firms work together to create the illusion, using credit, that it's instant; those credit arrangements are why brokerages post collateral).
Clearing brokers are members of clearinghouses. The relevant one here is (I think) NSCC, which is owned by DTCC. Policy set at DTCC determines how much collateral needs to be posted to cover any particular set of trades.
DTCC drastically ratcheted up the amount of collateral required to cover trades in meme stocks, which had the effect of 10x'ing the amount of cash Robinhood was required to post to insure that it would not go out of business before its current set of in-flight trades cleared. It made the same requirement of Apex, which passed restrictions down to its customers. These companies are contractually required to make good on collateral requirements, so there isn't much choice involved.
As to the other point, I belive the issue was in settlement, not clearing, ie with DTCC collateral reqs.
Yet their userbase grows and their users come back. They'll be fine.
Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.
But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their general solvency but ability to execute trades. This could easily cause a feedback loop that empties their accounts, at which point people are going to be unable to withdraw their cash which is goign to cause a bank run and drill the nails into their coffin even further. Healthy companies don't need to emergency borrow a billion dollars. If you have less than $250,000 on Robinhood, your account is FDIC insured so you'll eventually get your money back...but I think most people would prefer not to go through that process.
Robinhood is on a death spiral and prudent financial advice is to move any assets you have off of it as soon as possible.
FDIC guarantees funds to the bank. If the bank fails FDIC ensures YOU continue to access your account. If this means taking the bank into receivership and changing owners so be it. You can go to the FDIC website to see what banks have failed. Many do over the course of a year but the account owners are never at risk outside of the insurance amount on a single deposit account.
I hope you don’t keep more than 250,000 in an fdic insured account without additional insurance (which is silly because you could just open another account at the institution for additional coverage)
What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent?
I found it difficult to understand the intricacies related to this question.
Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price...
What mechanism are there in place to insure that ETF will not deviate from the underlying stock?
They have quarterly reporting obligations, and you can review those reports to see how they're doing. If you don't like what you see, you can sell the funds and/or file a shareholders' lawsuit and/or file a SEC complaint.
If you don't like that, the good news is with zero comissions as the norm, and fractional shares at many brokerages, you could build up your portfolio to match an index of your choice, without significant monetary transaction costs. It would take a lot of time to setup and when you made contributions, and dividend processing effort could be significant.
Sure, move your holdings out of RH. I don't have an account there, and never had, and probably won't ever.
But, regardless of RH's health or lack thereof, most companies don't have a sudden change in collateral requirements.
If what I understand from forum posts and twitter threads and youtube interviews or CEOs on speakerphone is accurate,
On thursday morning, DTCC changed requirements so that net buy orders for GME pending settlement would need to have 100% of the value of the shares posted as collateral (marked to market at end of day). I don't know what the requirement was on Wednesday, apparently 1-2% is common, but I'd hope it was already elevated earlier in the week.
And that colateral has to be owned by the clearing firm (which is RH for RH), and apparently can't be formed from clients' money, possibly including settled cash from the clients who made the buy?
This isn't a long term cash need, it's only while there's a large amount of net buys in volatile stocks awaiting settlement. Assuming either clients stop buying so much (because some are selling, or it gets borint) after a while or the price stops moving so quickly, collateral requirements should go back down and RH can return the money. As long as their clients don't stiff them on the buys anyway.
That they were able to quickly get a billion dollars hints toward fine enough health (or crazy lenders).
More worrisome is that they apparently didn't have a plan for managing trading in stocks with high collateral requirements (some established brokerages had enough collateral to do nothing, others limited trading to settled cash and similar trades with reduced credit risk for the brokerage). I don't necessarily expect an upstart brokerage to have unlimited collateral, but planning and managing around insufficient collateral should have been done; and more transparency would be nice. Maybe they had done some planning though, I certainly wouldn't be able to get a $1 B loan in a single day, although who knows what it cost them.
Gonna be interesting to see what gets to replace Robinhood for easy and reliable trades in the future.
The clearinghouse collateral requirements in part protect the clearinghouse from things that can go wrong at the brokerage, like if Robinhood had a vulnerability that let people place huge orders without paying for them, and they were, like, put out of business overnight.
I don’t think it has anything to do with margin vs non-margin accounts for instance. It’s just a formula where you split up the outstanding shares by the VaR as I’d get a capital requirement.
B) your shares trading immediately is a fiction. It takes days for those trades to settle. And any subsequent trades you make with those funds are all subject to credit risk. The central clearing house collateral rules are about risk management around that multi day float.
I think but am not an expert on this that the DTCC times explicitly require the capital to come from the brokerage not the clients. I don’t know why but can guess that it’s because it’s the brokerages taking on the risk not the individuals.
Fidelity was unaffected.
Some did not, mostly since their clientele wasn’t buying these anyhow.
Your only real job is to operate fair and unbiased bid/ask spreads and execute trades fairly. If you aren't going to do that then you are running a scam on your customers.
How is this fundamentally different then you placing a bet at a roulette table and the casino changing the rules mid-spin to make sure you will lose?
I don't understand your argument. RH either has the money to put up collateral or they don't. They didn't this week. That seems like the end of the story. They can't just "choose" to have more cash on hand than they actually have.
Similarly if you sell shares in 1 symbol and buy shares in another in less of a time frame than a few days you aren’t using cash. You are using credit (because it takes days for sales to settle).
All of that credit risk is all currently legislated to go through a few bottlenecks who have the power to enforce their own credit rules.
Analogies are dumb but it would be like if Amex called all the casinos and said “everyone has 90% less credit than they did 2 minutes ago”. If you had a roulette ball running based on your previous credit line at Amex you can bet the Casino would grab that ball. Especially if it had 200k Amex lendees in their pits.
That is not what I'm talking about though. I'm talking about 100% cash.
If you are trading on margin you can get margin called. If you aren't though your broker has no right to do this kind of stuff.
You are suggesting the casino would grab the ball for people who were not using amex. Deeply illegal.
I suppose you could make that argument and if you wanted to encode that as law I wouldn’t vote against it, but recognize it’s going to manifest in brokerage behavior where you can’t trade as fast or you have to keep more cash in your brokerage account.
[edit] I’d also love for you to cite what law a casino would be breaking by shutting down a game mid roll because I have no direct experience there but my mental model is that Casinos have wide latitude on allowing the games to run or not.
What are you even arguing here? That the purpose of a brokerage is to take customers money and play weird games with it to maximize profits and is allowed to just not have enough money to cover all cash purchases?
That is like if a bank just didn't let customers withdraw their money, and kept operating like nothing was wrong. Clearly illegal.
I don't think this is at all like a bank that won't let you withdraw your money. I think it's like a brokerage that has to post 100% collateral --- out of their money --- for every share of GME that you ask it to buy, doesn't have the money to post that collateral, and thus can't buy any more GME for you.
"I think it's like a brokerage that has to post 100% collateral --- out of their money"
How is this not the customers money? You deposited 100% of the collateral with RH. Banks can take your money and make loans with it so the bank can make profit, but only so long as they have your money for you when you want to use it.
I'm pretty sure everyone retained their ability to get cash out of Robinhood, for whatever that's worth.
When they bought the stock they had absolutely no reason to think the brokerages would stop selling shares.
They were selling call options that are in the money at $500, while simultaneously not actually allowing GME to go to $500. That is outrageous.
Right before robin hood shut down GME they closed people's positions out at a price of over $2000 per share. The holders literally broke through the sells and were forcing the short squeeze to happen. Robin hood then forced GME into the floor. That is absurd and should absolutely be illegal. It is a crooked casino. They should've been forced to close out everyone's position at the ask price, but they didn't want to so they cheated.
This is what r/wallstreetbets was after. Forcing people to buy at $1000+. Robinhood should've had collateral for people buying stock in all cash. If they don't they are basically a busted bank, and they cheated all GME holders.
This might happen because I went bankrupt, or MS starts trading for 1000 and you’d rather not give up the share, or whatever. To solve this，there are clearing houses that have collateral requirements to help ensure that the trade is executed as it was supposed to.
Most stocks don’t change that rapidly, so there’s relatively low risk that someone blows up. But GME has both extremely high volatility and is highly overvalued, which makes the risk of someone trying to walk away from it can’t meet their obligations much higher.
There is no restriction from SEC. Its money in app not privacy issue me/people would compromise.
Correct, the restriction is from the DTCC.
The comment upthread argues that Robinhood "chose" to retrict trading in meme stocks. That argument appears to be false. Robinhood did not have a choice whether or not to restrict trading; it simply didn't have the money to cover the clearing for those trades.
Why didn't they just restrict buying like they did in Friday instead of halting it completely? By halting it completely they caused a panic which caused lots of people to sell.
Why didn't they halt or restrict buying of any other stocks? Why only the meme stocks? It should have affected their financial responsibilities to the clearinghouse the same ways, no?
Why did they give no warning and explanation for what was about to come? The abruptness of it was obviously going to contribute to the panic.
The standard expiration date for meme stock options was the day after they halted buying. This caused their own customers holding those contracts to lose money. Why did they claim they were doing this "to protect their customers" when it was their customers who got screwed by this?
Why did they give no warning? I don't know, I think they're a clownfire.
To be clear, I agree with this assessment, but they’re being anything but clear about it, which as a user, has me even more worried.
RH was essentially letting their users pay full price for a stock, then lending that stock to hedge funds so they could use it against the actual stock owner by selling it short. Since the borrowed stock has already been resold (the stock the HF didn't own to begin with), now the question is if the HF can even afford to buy them all back. This is why the entire market dropped the other day, because HFs were selling off other positions to come up with the money. Sell offs could get a lot worse considering $GME is still currently shorted over 100%.
If the govt steps in to save the hedge funds at the expense of millions of average Joe's, or if the hedge funds pull some sort of bankruptcy loophole card resulting in the average Joe's holding the bag while they continue on, we could see people revolt against the entire financial system as we know it.
In the US there is Webull, which went against their clients initially and then reversed. As an European - where should I go to? Binance/Kraken seems the only reasonable option at this point, however crypto has ties to the real world only on macro-economic scale (although very relevant) and you cannot use your "capital" to influence the world around you in a good way.
P.S. I know that Fidelity and other well-reputed vendors didn't turn coats, but I am not sure it is an option here. P.P.S. This reminded me of https://www.investopedia.com/terms/t/tina-there-no-alternati....
There's Bux in The Netherlands. Haven't used them, though.
I would imagine most users care more about money and convenience than principles. I doubt they lose many users in the long run.
If the bubble or market crashes though they will lose a large user base for a long period of time.
Do we need to add barista's to the list?
They’ve said their financial position is stable, yet they’re stopping trades because of the volume moving through their clearance system (if I’ve understood what Vlad was saying to Bloomberg correctly, they no longer use an external clearing house).
If it walks like a duck, and it quacks like a duck, then it’s probably a duck. And it’s probably good that it’s walking as it doesn’t sound like there’s a whole lot of liquidity left to swim in.
I worry about this for other massive firms, even leaving the current circus aside. As unlikely as it might seem, what happens if a Schwab or a Fidelity or a Vanguard gets into trouble from some as-yet-unseen event?
The collateral can be thought of as more like “server capacity”. Their customers’ demand for usage of the collateral exceeded what was available and they had to reject new trades with, continuing the analogy, an HTTP 429. That doesn’t mean that they’re suddenly insolvent.
Their business requires them to perform this function, and if they can’t do that because they’ve run out of their own money with which to underwrite these trades until settlement, then that’s very much a crisis of liquidity however you slice it (which you can’t because, you know, liquid. Badum-tisch).
Worth noting that Webull, a robinhood competitor, is the #2 app in the play store. They initially restricted stocks but later allowed people to freely buy and sell.
On Thursday and Friday was when the publicity turned negative.
They basically said they were deeply sorry, didn't try to cover up and blamed their bank and clearinghouse.
In a theoretical world where I had to sign a EULA, I'd never sign any of them and I imagine most people wouldn't either.
This is the other way around. It is the users suing Robinhood claiming that Robinhood violated the contract by not making the trades. If the users established that there is no contract, they would destroy the foundations of their own case.
That said, I'm pretty sure you could make Robinhood fold if the users all bombed them with arbitration filings.
"Section 230 is a piece of Internet legislation in the United States, passed into law as part of the Communications Decency Act (CDA) of 1996 (a common name for Title V of the Telecommunications Act of 1996), formally codified as Section 230 of the Communications Act of 1934 at 47 U.S.C. § 230."
Robin hood users certainly weren't clicking around a UI buying stocks fast enough to cause the incredible moves witnessed, that could only be the action of the option market makers attempting to hedge options they'd sold to those users with a notional value vastly exceeding available liquidity
Did it have the deleterious affect of negatively impacting anyone long on the stock, probably. But, was that the primary rationale? It'll have to come out in discovery.
See https://www.sec.gov/rules/sro/nscc-an/2018/34-82631.pdf and explanation at https://twitter.com/MKM_Abdul/status/1355310540235579395
It seems like they just wanted an excuse to write an article about Section 230, or had already written it when it was a big topic earlier in the month and wanted to use what they wrote elsewhere. :)
Normally brokers block all trading ( buying/selling).
But only blocking buying it, seems manipulation to me.
All that sounds good from the business perspective, but my problem has always been that the outcomes seem tilted grossly in favor of the company. Like Human Resources, it's there for the company, not the employee/consumer, and its the companies that have to pay for the arbitration. Banning them does not seem like a long term solution, although I support it, so I'm curious what alternatives may exist that could accomplish both.