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Comment by gruez | Hacker News Reader

Probably because those are theoretical losses. The previous paragraph is also relevant:

>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.

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I don't understand the "deposit needed" aspect. I can't buy 2 shares of AMC at 12 dollars each but can buy 200 shares of TSLA at 800 each? How does that work?

Favor certain investors - like the ones shorting?

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.

Just because their decision favored another party doesn't mean it was malicious and they would be liable. If at&t had to shut down their network for 2 hours because of a botched firmware update, that would heavily favor the hedge funds (who probably have redundant connections), but that doesn't mean you can go after them for not being able to sell your GME stocks.

The communications records of everyone involved will paint that picture for us, as to whether favours were played or not.

Assuming someone was dumb enough to put any potential shady deal in writing. Wouldn't be the first time, but it requires a special kind of incompetence to do that.

And to be clear, the ones shorting _against_ the position _your customers hold_.

But there is the possibility that Robinhood was also cutting trading to appease Citadel, who to my understanding, just happened to re-engage their short positions right before Robinhood cut buying to Gamestop stock.

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.

Because anyone buying right away after funding an account or selling the same day as buying is buying on margin. Margin is used to make a lot of the "instant" stuff happen. True cash accounts make them difficult to use for the day trading these people like to do.

https://finance.zacks.com/tax-rules-use-proceeds-stock-sales...

https://www.fidelity.com/learning-center/trading-investing/t...

Also they can't use customer funds to fund the deposit, it has to be out of their pocket.

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.

Right. I get that. But if buying on margin is the problem, block buying on margin. Why block buying when people have the cash already settled in their account as well?

Edit: Answered in another chain.

https://news.ycombinator.com/item?id=25971718

> 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.

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.

Thanks for that information. I didn’t know that or about DTCC. Is raising the collateral on transactions like that typical?

Yes https://twitter.com/kralctrebor/status/1354952686165225478

Maybe Citadel knew about RH's difficulties and timed their moves accordingly. For smart person who knows how RH's model works (I am neither, btw), which I'm sure Citadel employs many of, it wouldn't have been hard to predict.

Robinhood sends their order flow to Citadel.

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.

And what did Citadel do with that info? Citadel is one of several internalizers Robinhood uses. Each of them got the same data. They are all competitors.

Can you explain the actual trade you are suggesting happened?

This doesn't make much sense. One way Citadel could have known there was a massive number of buy orders would be to simply read WSB.

WSB didn’t know about RH buy orders going to zero for everyone until at least half an hour after it happened. Citadel knew before anyone else on the market and could act accordingly to short.

> As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades.

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.

Not really, because the amount of deposit you need to put up is proportional to the volatility, among other factors. Therefore it makes sense to shut down trading for the stocks that incur a disproportionately high amount of deposit requirements for them. I guess it's possible for them to say "fuck it" and let everything trade until they run out of money, but I don't think they have an obligation to do that.

The collateral required by Robinhood’s clearing house to trade these stocks was raised to 100%, and it takes 2 days for trades to clear. Required collateral for other equities was not raised so there was no reason any other equities needed to be limited.

Those particular stocks had their deposit requirements increase, not all stocks.

You'll notice on Friday, a list of stocks with high volatility had restricted trading - including non-meme stocks, like AMD. It's a reaction to higher holding percentages.

The liquidity claim on tv was never supported and was later retracted. David Portnoy also called it out directly as well. Liquidity was not the reason for Robin hoods actions.

The deposit requirements on those stocks were increased from 2% to 100%.

The collateral requirements differ from stock to stock.

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