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Comment by hntrader | Hacker News Reader

RH say they scrambled to organise necessary credit lines in response to new DTCC requirements. Well why weren't they in place by Monday, Tuesday or Wednesday in the expectation that DTCC would increase these requirements? Volumes were already exploding with many days of advanced warning and IVs already approaching the hundreds of percent. There's a plausible alternative that RH is not being entirely truthful, and purposely didn't organise the required lines in order to satisfy their biggest customer, so they had a legal way to restrict trading. I don't have evidence that this is true, but nor would I expect to have this evidence at this early point in time.

I believe RH's explanation is probably the truthful one (Hanlon's Razor), but some scepticism is warranted.

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The article you just read points out all the other brokerages that had to do the same thing Robinhood did.

WeBull CEO said that their situation was very different, as Robinhood is self clearing and they are not. They were told to stop trading. So the situation is not as simple.

While it's true that Robinhood has its own clearing firm, Robinhood securities is a NTCC member and is perusant to the same deposit requirements as everyone else.

Just as Apex clearing had to raise capital deposits, so did Robinhood securities. That they own the firm just means they wouldn't pay the clearing fee in return for funding the clearing firm.

And they are no longer restricting

I guess it's possible there is some sort of conspiracy going on, but I always like to remember "never attribute to malice that which can be adequately explained by stupidity."

I don't apply Hanlon's Razor when there are billions of insider dollars at stake.

Why not both?

> but some scepticism is definitely warranted

What’s the alternate explanation in which RH is being nefarious? Why would they want to stop buys?

The conspiracy theory is that they restricted trading in order to crash the GME price, thereby benefiting Citadel. There seems to be a "legal" way they could've done this, which is failing to be sufficiently capitalized for when the DTCC reqs change.

Hanlon's Razor and all, I fully agree, so I think this isn't the most likely explanation, but I don't think the prior for it is that low either.

I wouldn’t dismiss that theory as conspiracy theory, given Steven cohen’s history of convictions.

To be fair, that's not pertaining to Citadel (which RH sells flow to) but to Point72, a different backer of Melvin Capital

A bunch of rich people from whom Robinhood takes payment for order flow stood to lose money if shorts continued to squeeze quickly, and selling pressure from spooked longs provides an offer to shorts who need to cover.

So you accuse the author of bad faith or at best laziness or gullibility. You are now obligated to provide superior explanation of the trading regulations, not just call names.

I tuned down the rhetoric a bit as that's not how I wished it to come off. I think the article is very good actually, I just wanted to introduce some scepticism regarding the PR explanation we're getting at the moment (and there might be something I'm overlooking that debunks what I've said, very possible).

I know literally nothing about the legal landscape here. Are they allowed to be dishonest or even misleading in PR statements on topics like this? (I’m thinking of how much trouble Musk got in for “420”).

> (I’m thinking of how much trouble Musk got in for “420”).

Yes, trouble, the kind he could just walk of. Some people also call that the cost of doing business.

Yes, they are, as you can most easily see because Musk getting "punished" didn't stop him from continuing to break securities law on Twitter.

The punishments are smaller than the benefits.

I'm not saying Robinhood was breaking the law or lying here though.

At any rate, hostile questions on cable TV are not official sworn statements under Sarvanes-Oxley or court hearings. It's unfair and inappropriate to hold someone to a standard of perfection in live hostile questioning on TV.

What if I told you people break the law and are dishonest?

I would reply that I am a Bayesian rationalist not a Boolean rationalist.

I'm not aware of any specific restrictions on PR statements so I guess they're allowed to be as (dis)honest as any company is allowed to be.

Tesla is publicly traded, which is why the SEC took action. Robinhood was looking to go public, but hasn't done so yet.

This is my leading theory. It's called "plausible deniability". When billions of dollars are at stake I don't believe in coincidence, especially not when they moved in the direction of megapowerful people that includes a guy convicted for insider trading.

Aren’t there mega powerful people on both sides?

As far as I can see you have Citadel on the short side hemorrhaging cash. On the long side you have mutual funds like Blackrock, but they can’t close their position, and they’re making money lending their shares. I don’t see a Citadel-sized institutional interest and influence on the long side. Only retail investors would go all in on a stock trading at 20x earnings or whatever it is.

We have congressional corruption on the record for 6 figure payments. Billions at stake at Citadel can get a percentage changed on a risk management formula used for liquidity requirements at DTC, especially when they can easily justify it. Like I said, plausible deniability. If you disagree maybe you haven’t personally witnessed the levels of institutional corruption I have.

Having read this, this also sounds like a plausible explanation: https://old.reddit.com/r/wallstreetbets/comments/lanf94/gme_...

How I am interpreting this is that reddit's bet was too right -- these hedge funds were so exposed, and the momentum was building so fast against them, that it was about to create a liquidity problem that could threaten the stability of the entire market.

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