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Comment by paulgb | Hacker News Reader

I maintain that that was the right thing to do, given the situation they were in (and not excusing them for not avoiding getting into that situation)

The way I see it, if I own a stock and want to sell it, my broker’s duty in that situation should be exclusively to me. Even if they don’t have the ability to let other customers enter a position, they shouldn’t block the exit gates for me in a naive attempt to maintain balance of buy and sell orders.

If it could be shown that they did this intentionally to manipulate the market, of course they should be fined for it. But if the truth is in line with the official statement at the time, I don’t see wrongdoing.

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it was absolutely the right thing to do, they would've been massively over-exposed, somehow it's painted as villainous and underhanded.

If they had lots of deposits and went under surely people would've been less than impressed and asking why they didn't take action sooner.

it was the right thing to do on the moment, but what was wrong was:

a) cutting corners and ending up in that position

b) not being completely transparent about what was happening

c) changing story multiple times in an attempt to save face.

The CEO claimed they had no liquidity issues at all, then claimed they didn’t have enough money to meet margin requirements. Since then, we have found out that the DTCC that asked for more collateral recanted prior to market open but RH still discontinued retail buying anyway.

Like an IT outages reflects poorly on a tech company, not being able to manage your books reflects poorly on a financial company.

>a) cutting corners and ending up in that position

What corners were cut? That they didn't prepare for a unprecedented buy wave in meme stocks along with a massive increase in deposit requirements?

Opening (and pushing) call options to a broad userbase without first ensuring they had the capital reserves and the access to additional funding to top-up those reserves

it's a bit easy for robinhood to say "fuck the old banks, we don't need to be part of their network, and we're going to open complex derivative trading to everyone", and then as soon as everyone starts buying massive amounts of call options, suddenly realising that they need massive collateral and they don't have any partners to rely on

> Opening (and pushing) call options to a broad userbase without first ensuring they had the capital reserves and the access to additional funding to top-up those reserves

Them opening/pushing options to their userbase was a long term move, but GME blowing up and deposit requirements spiking up was a short term event. Therefore those events aren't really contradictory.

>fuck the old banks, we don't need to be part of their network

That was part of their messaging? I haven't been keeping up with their blog posts, but AFAIK their messaging is closer to "democratizing finance" rather than "fuck the old banks".

Well, if I gave my kid five bucks and sent them to the store to buy a gallon milk, there wouldn't be any 'credit' or 'exposure' or 'risk' or 'volatility' involved.

Are we to believe these cutting edge financial institutions with their sub-millisecond high frequency trading, specialists in order execution, eight-figure salaries and dedicated high-speed microwave links are somehow unable trade cash for goods like every store does hundreds of times a day?

Not to defend Robinhood, but the GME debacle was not like you sending your kid for milk; it was like everyone panicking and sending their kids to the same store, to buy a whole cart of milk each. As the early months of 2020 demonstrated, brick&mortar stores don't handle deviations from regular buying pattern well either, and having cash in hand doesn't change anything.

That's not how brokers should work though, speaking in code, they are a wrapper around the market to make an interface that regular people can use.

Price discovery means that buy/ask spread changes based on supply and demand, were this the case, and there was no collusion, then there would have been no need to shut down trading.

The problem is the supply was inflated due to naked shorts, and Robin Hood's clearing house/business partner (Citadel) was caught with their pants down facilitating this naked shorting.

Under normal market mechanics, there would be no panic. The price would have increased, early adopters would have gotten profit, late adopters would have missed out and lost as the correct price was found.

The January blocking of trades was a desperate 'Hail Mary' to prevent an actual squeeze, and it *worked*.

Calculations based on married put/calls shows that 190% of GME has, and still is shorted. There is no way to close the short position without increasing demand.

https://www.reddit.com/r/Superstonk/comments/oc4f79/well_the...

Yes, this is conjecture, but the author is well respected, and if you can disprove any of it, reddit is very happy to help you strengthen/disprove it's case.

It's all seems quite cultish over in superstonk, but no-one believed Michael Burry back in 2008.

> The problem is the supply was inflated due to naked shorts, and Robin Hood's clearing house/business partner (Citadel) was caught with their pants down facilitating this naked shorting.

What is the “caught with their pants down” referring to? I’ve seen dubious speculation but this is the first I’ve heard of them being caught on anything.

They had a naked short position, one that could not be covered, and when the price rose too high, they would be margin called.

When all the shares on the market are synthetic (fake), and retail and investors own more shares than are issued, then there is a serious problem that can either be brushed under the rug, or untangled by force (liquidation)

Citadel itself is a hedge fund AND a market maker, it has two arms both ran by Ken Griffin.

The path they were going down pre January was to short Gamestop into bankruptcy with no means to raise capital, much like Toys R us was. When Gamestop got a new CEO, and changed direction, they had already gone 'all-in' with their shorting with no way out.

Main thing about shorting, it's an infinite risk position, but hedgefunds have historically been able to short into oblivion.

That’s aligned with what I’ve heard speculated, but what’s the part where they were caught? The reddit post doesn’t point to a Citadel link, unless I’m missing something.

Not literally caught, they are stuck in a position of covering and liquidating or seeing how far they can kick the can down the road.

>Price discovery means that buy/ask spread changes based on supply and demand, were this the case, and there was no collusion, then there would have been no need to shut down trading.

1. they didn't shut down trading, only forced positions to go into close-only

2. they absolutely needed to do that, given that they were at risk of not being able to meet deposit requirements, which would mean they would have to suspend trading for all stocks

>Calculations based on married put/calls shows that 190% of GME has, and still is shorted. There is no way to close the short position without increasing demand.

1. shorts in excess of 100% doesn't indicate anything nefarious, due to synthetic longs created by shorts

2. I'm very skeptical of these "calculations", when official numbers put short interest at far lower than that, eg https://fintel.io/ss/us/gme.

>Yes, this is conjecture, but the author is well respected,

Is he? Respected by whom? The superstonk community? The financial community? If it's just the latter it doesn't mean much.

>It's all seems quite cultish over in superstonk, but no-one believed Michael Burry back in 2008.

“But the fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright brothers. But they also laughed at Bozo the Clown.”

-- Carl Sagan

1. They shut it down enough to prevent retail from FOMOing in more. At that point, the rules of the game were changed, and the price dropped.

2. I'm skeptical too, but there is no way the reported figures are accurate. Finra itself lists RC Ventures/Blackrock twice, and adds up to more than 100% for institutional investors. Information on Bloomberg terminals is completely wrong, and information on short positions is self reported.

I'm tempted to believe criand's latest DD, as it's yet to be disproven. Older DD has not stood the test of time so well.

In regards to qualifications, yes, the superstonk members are self policing, but also they don't accept that credentials mean you are automatically right, and people who are wrong are called out almost immediately.

There's not going to be a place where it says 'This stock is owned 290%', but then again, that's the nature of Russell's teapot. Given what I've seen with news coverage, the promotion of AMC as an alternative, and the passing of so many SEC rule changes, it's hard to imagine zero fuckery behind the scenes.

>1. They shut it down enough to prevent retail from FOMOing in more

Source? The only thing we know for sure is that they restricted trading. Their official explanation was due to volatility/deposit requirements. What's the evidence that they did it to "prevent retail from FOMOing in more"?

>2. I'm skeptical too, but there is no way the reported figures are accurate

They may not be 100% accurate. I'll entertain the possibility that they're a few percentage points off, but are they more than 10x off as the DD suggests?

>Finra itself lists RC Ventures/Blackrock twice, and adds up to more than 100% for institutional investors

Can you link the Finra report? I can't locate it directly, so I'm just going off whatever's reported by other sites

>as it's yet to be disproven. Older DD has not stood the test of time so well.

This should tell you all you need to know. The general problem with debunking conspiracies is that it takes more effort to debunk than it is to make it up.

>Given what I've seen with news coverage, the promotion of AMC as an alternative

The alternative explanation to the "even the media is in on it!" conspiracy is that GME was months ago, and AMC is far more recent so is therefore getting more attention. Another problem is that: what about the hedge funds shorting AMC? Don't they stand to lose if AMC blows up? Where's their conspiracy? Do the GME shorters have better conspiracy people than the people shorting AMC?

You should be able to sell it, yes. But who are you selling it to, if Robinhood is preventing you (and your peers) from buying?

People who use less-crappy brokers, via exchanges. Or market makers, if they are willing to beat the best current offer on the exchanges.

So a smaller pool of people than those people + people on robinhood. So nice convenient price pressure is applied.

Which I think is the OPs point.

Convenient for whom? If the implication is that they were trying to manipulate the market, I agree they should be in trouble, I just don’t think that’s the case.

I’d note that the other choice they could have made — blocking selling when it was not necessary — would also have the appearance of market manipulation (in the other direction).

People who aren't on Robinhood.

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