Robinhood Raises Another $2.4B from shareholders
wsj.com
wsj.com
Additionally, Robinhood isn't the only one in a bind right now.
TD Ameritrade has restricted a lot of options trading on a lot of these stocks, requiring you to call in to sell certain types of derivatives plays which have a level of risk but highly profitable for experienced traders.
It's left a VERY sour taste in my mouth to know I have to call into a call center, and wait 90 minutes to speak to someone to execute a trade that puts 100% of my capital at work using zero margin (sell cash covered puts on GME and AMC).
Perhaps this is specific to Robinhood though.
I mean, you think the owners are diluting their ownership just for fun? Nobody does that.
Also why do you think the capital requirements are untrue? There have been plenty of factual articles describing the precise increase that was required and how it was spread across different trading platforms.
It's not speculation, it's well-document fact.
Do you have any proof that's not the complete and honest explanation? Because it sure seems sufficient to me, nothing further needed.
And please refrain from derogatory comments like "anyone with two brain cells can see" here on HN. It's against the guidelines.
People who've never been in the market before in their life seem to have jumped on $GME.
I lazily left my 401k at my previous job "running" for 18 months before finally rolling it into my personal IRA. I'm sure I'm not alone in this.
These weren't one-off incidents (Robinhood has not, yet, established a trend), these were systemic issues with these banks. And people still go to them. They're getting new accounts daily, not subsisting off of legacy accounts.
The portion of people who invest -- outside of forced investing through 401k, etc. -- is pretty small in comparison.
Those that are using an investment application to speculate on stocks on their phone are a smaller yet demographic. And I'll bet that, dollars to donuts, they're more informed about everything, and more willing to shop.
But at least it identifies who are they real customers for RobinHood.
"reports" that i'd read said that fidelity were getting something like 600% increase in signups (who knows if thats because of this movement or because people hate RH).
Moving means totally removing yourself from the market precisely at the time when big swings are happening, which many people might not want to risk. So it's actually pretty tricky, not frictionless or anything.
At some point, either migrate your holdings from RH completely or sell them off and move money to Fidelity.
Done.
Robinhood,on the other hand is still tumbling thumbs on their ACH transfer I did last monday. No margin was accessed.
Going to close the RH account, I see no value in it. I do most of my trading on another platform, but felt like playing with fun money to see how it'd be.
Not fun at all.
Feels like a good day to watch The Wolf of Wall Sreet.
A year ago, the person that started this detected a situation where GME was a company that didn't have long term prospects, wasn't losing money, but was still shorted to 140% of it's value. It's not supposed to be possible to go over 100% any more since 2008, by the way.
Because of the shorting, he deduced that hedge funds and other influential people in the financial system were planning to encourage GME to go bankrupt, thus getting their short shares forgiven, because a bankrupt company is written off as a loss by the actual share owner.
So the hedge funds' plan was to short shares at some price as much as they could get away with, then make the shares worthless by encouraging bankruptcy. Since the shares would then be written off, they would pocket all the money they took from selling the shares they borrowed to short. Nice racket.
What WSB did is make the price go in the opposite direction, which is important for a lot of reasons, but one huge one is that the risk of shorting is proportional to the reward. If the price of a shorted stock goes up, then the borrower (person doing the short) still has to return it to the owner. No matter how high the price goes.
So they realized if they drive the price WAY up, then the people who were doing the 140% shorts on a company they planned to drive out of business would get screwed by their own system.
Some of the folks on WSB are making money and lots of it, but many of them just want to see the whole unfair system burn. By exploiting this weakness, they're trying to force the government to reform the whole finance industry.
In this case, the important point is that a hedge fund with a 140% short position is more vulnerable to loss than a hedge fund with a 100% short position.
Sure, but only in the sense that a fund is also more vulnerable to loss at 80% short than 40% short. Nothing magic happens between 99% and 101% short.
This is fundamentally untrue.
Abusive naked shorting with the goal of driving down prices is illegal. >100% short interest doesn’t require naked shorting at all.
If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved.
A better analogy to understand why short interest can rise above 100% is fractional reserve lending and the effect that it has on money supply.
Re-borrowing the same share does not make it a naked short.
In any case, the important limit here is that financial firms are not supposed to allow hedge funds or other entities to assume short positions for more stock than exists, because if it becomes necessary to execute the trades to resolve the shorts, that extra 40% will fail to deliver, because those shares don't exist.
The SEC actually keeps a list of trading companies with high rates of failure to deliver as a means of detecting naked shorting.
That's only true if you force all shorts to be covered at once without a chain of trades. That's not how it happens.
Person A covers their short by buying a share from Person B and returning to Person C. Person D then buys that share from Person C and returns to Person E to cover their short. That's 2 short shares covered with a single underlying share and no failure to deliver.
Yes, the SEC does track failure to deliver, but >100% short interest does not mean there is naked shorting nor does it imply there will be failure to deliver.
"Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist"
- https://www.investopedia.com/terms/n/nakedshorting.asp
> that extra 40% will fail to deliver, because those shares don't exist
This is not true because all shorts don't have to be covered simultaneously.
> The SEC actually keeps a list of trading companies with high rates of failure to deliver as a means of detecting naked shorting
Funnily enough, $GME had very high failure to deliver rates in December [0] but this is not necessarily due to the short interest.
[0] https://www.reddit.com/r/wallstreetbets/comments/l97ykd/the_...
Naive question: Why would that ever happen? Wouldn't this scenario just cost person C commissions with no opportunity for gain?
You might be asking instead about the following scenario, though, where a single share is borrowed and sold short multiple times:
Person A borrows from Person C and sells to Person B
Person D borrows from Person B and sells it to Person E
Well, the covering of the shorts doesn't have to happen in an atomic transaction; there are thousands to millions of trades of a single ticker every day. Just as a single share can create a chain of multiple shorts (borrows and sales), a single share can cover multiple shorts too through a chain of trades.
If you can’t do that then you at least have to get the cooperation of someone who does own the stock in sufficient quantities - and their interests are probably against yours since they, y’know, own the stock.
Banning recursive shorting would be a nightmarish enterprise, since each individual share would need to be tracked to see if it was already shorted. Banning naked shorts supposedly does enough to discourage the behavior. We may be seeing that to not be the case.
With all due respect, this is still speculative. We won't know the exact numbers for another week.
My summary above is rough, and it's based on most of the information I've read about the situation. As always, there are voices on both sides for every single fact.
Time will tell how this all falls out, but right now there are a lot of finance firms grinding their teeth, which is a victory in itself.
Also, apparently Gamestop itself used the gain in stock price to settle some debts by being able to issue more stock to meet demand at the higher price, thus getting a cash infusion.
False -- if you're going to spread information about financial nuances across this thread, you should look it up first. Go read the SEC filings for GME (SEC EDGAR is your friend), there has been no additional issuance since GME took off. Nor would it be realistically possible given the volatility.
I think now, the cat is out of the bag, and astroturfing a pump-and-dump on reddit/twitter/discord is going to be a pretty lucrative thing now for some entities, at least until there's some kind of regulatory action against it. Comments like this: "I'm trying to jump in but can you eli5 what a market order is please?" get translated to "Come eat my lunch please! I would like to give away my money."
They want to see the whole unfair system burn, which I totally get, but this is not how you make that happen. Regular people do have a lot of power over our financial system, but when they try to exercise it like this... it's difficult to watch. So many people are going to eat shit on this. They'll be left holding the bag and wondering why everyone else on Wall Street got so rich off their backs.
If you're reading this and you think you might be sticking it to the hedge funds by buying in: there are plenty -- PLENTY -- of hedge funds who are willing to sell you GME at $350 per share.
I recommend “Margin Call”. Though I felt it overbalanced on the human drama it nicely complemented The Big Short.
But the founders of Robinhood who built the Zynga of the capital markets? Not much empathy for them.
From what I understand now, them having to halt buys on $GME wasn't really their call. However, given the tone of their emails, I can only blame them for the theories that they did it on behalf of HF.
it just surprises me that the HN crowd preaches the gospel of growth at any cost and then when it blows up in robinhood's face everyone runs here to say that they should have known. seems like a lot of after-the-fact rationalization to me.
On top of that, my opinion of the DTCC (I worked at a self-clearing firm for a while, so we had to interact with them) is that they are intentionally dumb and conservative when it comes to asking for collateral. And until now, this hasn't really drawn much attention, mostly because the rest of the firms out there are a lot better capitalized than RH. My guess for why they're better capitalized is just that they're larger (in AUM), older, and operate in more markets.
I don't like RH, but I wouldn't blame them for getting blindsided by the DTCC to the amount that they did. Props to them for being able to raise the cash, I hope it wasn't all equity, since they won't need that cash in a couple of months. I saw recently that they had $12B in AUM--it doesn't make sense to run with $3B in operating capital.
It's funny they worry so much about (short-term) liquidity, while their long-term brand & trust & customer base erodes irrecoverably by the minute.
They're worrying about short-term liquidity in order to provide serve in order to maintain their brand, trust, and customer base.
That's... the entire source of the problem. Meeting capital requirements in order to keep running.
I haven't seen any actual reporting of any lies. Just a bunch of people speculating they were colluding in halting trading, when the actual reason was later demonstrated to be capital requirements.
If you have actual recent examples of lying, however, I'm curious.
Let's see, where do I start.
Official blog announcement: https://blog.robinhood.com/news/2021/1/28/keeping-customers-...
No mention of liquidity requirements whatsoever.
Cuomo Interview: https://twitter.com/CuomoPrimeTime/status/135498974615878451...
Cuomo: "If you don't have a liquidity issue, but you have to stop the trading because you couldn't meet certain capital requirements, how does that reconcile with itself?"
Vlad: "We feel pretty good about the situation"
CNBC Interview: https://www.youtube.com/watch?app=desktop&v=cuCcchMOsKE
Sorkin: "It sounds to me though, that you're suggesting that there was a liquidity problem"
Vlad: "No, no, there was no liquidity problem."
Elon Musk interview:
Musk: “hey what happened with robinhood”
Vlad: “uhhhh I don’t know I was asleep at home”
they showed the world, that sheeps are willing to keep using their services
keep buying $GME, you are helping them ;)
There isn't going to be an IPO after this GME fiasco. The founders played themselves and possibly will never be trusted again.
Also the people who invested in RH and its unscrupulous practices, Andreesen, Sequoia etc., are myopic if they don't think people will forget.
"The fish rots from the head." - old Russian proverb.
Many brokers do this. They get better execution services from hedge funds / electronic traders than they could possibly build themselves. Given rules like NBBO for equities, this can really matter. It saves them money in engineering a hard problem AND makes them money from the other side.
It is relatively common for brokers to sell order flow. It is not unheard of for brokers to stop trading in a security for limited periods. It is very strange for brokers to enforce one-way trading in a security as Robbinhood did, and highly suspicious on top of that when the resulting asymmetric trading regime is of enormous commercial benefit to the biggest purchaser of their order flow.
* https://mobile.reuters.com/article/amp/idUKKCN2253T2 * https://mobile.reuters.com/article/amp/idUSKBN1FT2S4
Robinhood was in a no-win situation. You can read about why they were forced to restrict buying here: https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robin...
If they restricted sells too, they would have been lambasted, likely even more than they currently are, by people trying to get out of their positions either to capture gains or avoid loss.
Robinhood's only move was to mitigate the fall-out with customers through messaging, which they failed miserably at. It's unclear to me whether this failure was due to incompetence or because they were (or thought they were) restricted from providing certain information by law or contract.
Somehow I doubt perjury attaches to an untranscripted chat on a celebrity-only private audio app. Everything at that third link seems highly lawyered: "From our perspective", "I wouldn’t impute", passive voice, etc. From a guy named "Vlad" who looks like Dracula. I guess it was just prejudice that caused me to expect someone from Sherwood...
This question is irrelevant in the case of Robinhood, because they had no choice. It seems like that is also fundamentally why they didn't restrict selling — because they wren't required to, whereas they were required to restrict buying. I.e. they imposed the minimum necessary restrictions. This is exactly what you would want from someone in Robinhood's position. You don't want them making their own decisions about who can buy or sell.
> Somehow I doubt perjury attaches to an untranscripted chat on a celebrity-only private audio app. Everything at that third link seems highly lawyered: "From our perspective", "I wouldn’t impute", passive voice, etc.
If something was highly lawyered, do you really think they would go with a lie that would be this easy to disprove? I.e. a lie that relies on people with no interest in Robinhood to uphold it?
> From a guy named "Vlad" who looks like Dracula. I guess it was just prejudice that caused me to expect someone from Sherwood...
I don't know that it makes sense to base whether or not you believe him on things he has no control over.
But to your latter point, it seems almost criminal. At the least, I hope the class action against robinhood is won by the clients.
My understanding is that brokers must execute their customers trades if possible. The collateral requirement they ran into only affected purchases, hence why buys were restricted but sells were not.
"ιχθύς εκ της κεφαλής όζειν άρχεται".