This sounds like a liquidity issue, but Robinhood's CEO said in the interview that there was no liquidity issue.
The why doesn't matter at this point because Robinhood CEO was caught lying by contradicting himself.
Their comms approach is the type of PR disaster that will be studied for years to come.
It's more like a denial-of-service attack. Customer orders take server-side resources to execute. Except that the server resources taken up are literally money, and execution takes days. Blocking orders fixes the problem.
They didn't allocate enough server resources (money) to execute all requests under extreme load.
Customer money is a separate pool, not used for execution.
Kind of unrelated, but I think if "wall street" was really upset regarding what RH is doing, this wouldn't have been possible.
It was a liquidity issue but if he had come on TV and stated that, there would have been market collapse and utter chaos. I can’t understate how close we got to having a big liquidation event on the entire market, which we still may depending on how this week goes.
Not to defend the RH CEO, who I thought was very poor about communicating this, but I don't think that particular sentence was a lie.
The whole stock market industry is based on fractional reserves.
> deliver the value of the options
Do you mean they wouldn't be able to give people cash if they sold their options?
That's solvency, not liquidity. If your liabilities exceed your assets you have gone bust.
Liquidity is having the cash to cover your outflows. You may have enough assets but if these assets aren't liquid, you have a liquidity issue.
I don't think this is a good definition.
If I have a $150 electric bill due immediately, no cash, and $200,000 of real estate I have a liquidity issue.
This despite the fact that my current assets far exceed my current liabilities.
They are refusing to do things to prevent liquidity issues. Their customers can send requests that cause them to temporarily take on more debt. There are particular orders that need a lot of money to execute. Block those orders and they don't need to borrow the money.
You could say they didn't provision enough resources to handle extreme load.