Stock freezes happen. They are, all things considered, fairly routine affairs. This was not a stock freeze - it was a company that got out over its skis, ran out of money, and screwed their users to ~unfuck the situation~ unwind their position.
Stock freezes happen. They are, all things considered, fairly routine affairs. This was not a stock freeze - it was a company that got out over its skis, ran out of money, and screwed their users to ~unfuck the situation~ unwind their position.
They had no choice. They literally couldn't obtain any more GME stock. You cannot squeeze blood out of a stone. What do you want Robinhood to do?
The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers.
They would allow "selling", because Robinhood can then obtain that customer's GME stock, and then give it to another customer almost immediately.
------------
All of this margins and stuff is probably just overcomplicating things. You're basically getting mad at toy stores for running out of Furbies, PS5 (or whatever fad-toy is available) during Christmas. Sold-out means sold-out, they can't sell you anymore.
But they were willing to accept sell orders (aka: buy GME stocks from others), because that would replenish their stocks of GME to sell to other customers. If some PS5 scalper came up to (insert store here) saying "I wanna sell my PS5 at market prices", of course the toy-store would buy the PS5 (and immediately sell it to the next customer for a higher price).
This is a poor analogy. So long as there is a large enough float, which is a requirement to be listed on some exchanges, there should always be stock to buy and sell.
Don't compare it to something else that's commonplace and misleading. I am aware of the margin requirements and what happened with DTCC and am purposefully avoiding that more complicated subject only to point out how much I dislike your analogy.
Robinhood didn't have the money / collateral to obtain any more shares.
As far as Robinhood is concerned, GME was sold out for that time period. It really is actually that simple. No shares for Robinhood meaning no new shares for Robinhood customers.
In 2 days time, Robinhood T+2 settlements occurred and everything cleared up. Except the meme-stock buyers already lost interest because they had the attention span of gnats.
> how much I dislike your analogy.
Care to explain why its a bad analogy? The only meaningful difference I can think of is the whole T+2 settlement thing (but that's very much like "The next delivery of Furbies is in 2 days", yall can buy Furbies then). Perhaps this is stretching the analogy too far now but... the fundamental situation seems to be solid.
The other poster is saying outcomes matter more and that the perception and promises you make to users matter.
Both valid points, but Robinhood losing their ass to perception, their direct fault or being the victim of a crappy system, is just the way the cookie crumbles. There is a play here which Robinhood hasn't considered: own up to it and build a plan to be reliable to retail investors and use realistic messaging while doing so. Their CEO is apologized but they've failed to unveil how they intend to be an ally to retail investors in the future: https://news.yahoo.com/robinhood-ceo-apologizes-restricting-...
The reason I dislike the analogy is because brokers aren't (typically) supposed to run out of shares to buy and sell. Retail traders don't think of trying different brokers for availability like you might trying different toy stores. The point of having a large enough float is so that you can continue trading the stock. Market makers exist to provide liquidity. It's supposed to keep trading, and only some brokers like Robinhood were unable to manage this.
They are paying for $0 trades to a very, very small trading firm with well-known trade-execution problems months / years before the GME instance. No serious trader actually trusted Robinhood, and nobody was surprised when Robinhood's trading ability was shown to be so weak in that timeframe.
There were many respectable banks with much stronger finances who were able to support the GME-rush. It was just the small guys without much $$$$ who failed, like Robinhood.
--------
If you did a bit of research, you would have found Interactive Brokers (for instance). I'm not a customer of IB, but they have plenty of online material for what exactly you're paying for.
And that is, trade execution. It matters, especially in times of trouble / times of risk. The stronger the bank, the better their ability to continue operations during weird times.
> The reason I dislike the analogy is because brokers aren't (typically) supposed to run out of shares to buy and sell.
Except they do. All the time when bubbles pop and other crisis form. Good luck selling stocks during the crash of (whatever). When the stock market is crashing, there's no buyers, so the price keeps dropping and dropping.
Without any buyers, you will never be matched and you'll never be able to sell until its too late. Understanding these mechanics is very important to any market participant.
"Flash crashes" with stop-loss orders are particularly lulzy. Your stock is automatically put up for a sale on a flash-crash. There's no buyers, so you sell the stock at a grossly lower price than expected (when some savvy buyer finally decides the price is low enough). That's when you're matched up. By the time you look at the stock, the "flash crash" is over, your stock is randomly sold and at a bad price.
Etc. etc. Its annoying, but these sorts of events happen all the time, and its important to remember the mechanics of buying/selling stocks at all times when trading.
https://www.sec.gov/news/press-release/2020-321
Robinhood was all kinds of shady long before the GME events.
Market halts are completely different from what we are discussing. And one of the purposes of market makers is to provide liquidity in extreme cases as you are describing (I'm not saying it works perfectly, but it's one of their reasons for existing).
Anyway, I feel like we aren't quite getting our points across to each other. Not blaming you just saying let's agree to disagree.
I'm not talking about market halts. I'm saying when all the buy-orders vanish from the marketplace, it results in a "flash crash". Hitting the "sell" button will do really weird things at these times.
After all, a "sell" can only mechanically happen if the market pairs you up with a "buy". That's just how the stock market works. If there's no buyers, you can't sell, even if you're hitting the "sell" button.
I realize every buy needs a sell. I also said "typically" and considering there obviously were buyers since you could still sell, everything you're saying is irrelevant to the discussion we had about GME in 2021.
Anyway, we're not getting anywhere. You can respond but I'm not responding anymore.
No, RH matched the sell order with an internal buy order and netted them out to reduce their collateral requirements over the T+2 settlement period. They didn't use cash to buy stock from other brokerages.
Options are extremely different than the underlying stock.
Options is everything we discussed except with way less volume and way more margin requirements.
It doesn't seem like IB restricted GME-stock, only options-on-GME-stock, which is a very, very different instrument.
------
That being said, if I were a paying customer to IB and was hoping for good options-trades during that time, I guess I would have been pissed off. Still though, its a far more understandable issue to have a derivative-trade fall through rather than the underlying stock-trade fall through.
If Robinhood is taking a net inflow of shares, then logically other brokers must have a net outflow. So of course there would be other brokers with shares to buy.
One reason you could go to some other broker and buy GME is because that broker had many other customers looking to offload an overhyped stock. You couldn't buy on Robinhood because their customer base was mostly retail traders looking only to buy.
I had a furry white one and it was awesome.
So when a RH user hit the buy button, RH couldn't find a seller within Robinhood and had to go to the clearinghouse to find other sellers. Robinhood maximized its buy orders to the clearinghouse (ran out of money), and that was it. RH couldn't afford finding sell-orders anymore. Game over.
------
Furthermore, the amount of money needed at the clearinghouse was clearly a burden to Robinhood. When they saw the bill, I'm sure they would have preferred for sell-orders to go to the clearinghouse (rather than internally), to unwind from DTCC.
All stock brokers prefer trading "within" the system rather than seeking out 3rd party partners to find stocks / stock-buyers. Its cheaper and easier.
A laymen would look at what Robinhood did and think Robinhood cut the fuse to the short squeeze bomb.
As explained elsewhere in this thread, regulations don't allow this.
Basically because of the balance of upside and downside --
If I can't buy into a stock that's suddenly spiked, at best I'm experiencing FOMO and at worst I'm missing out on some potential profits.
If I can't liquidate my position on a stock that's suddenly spiked, then at best I'm missing a chance to realize my gains and at worst I'm being forced to sit there and lose money.
(I realize this is only considering long buying. TBH, I can't really think up a story for retail short sellers more compassionate than "caveat vendor." Nor am I sure why I should try to.)
You aren't missing anything. This is fairly obvious to anyone who understands how exchanges/brokers operate even on a basic level.
The bottom line of it is, disabling buying was a hard necessity to avoid a complete disaster for everyone involved (including customers). Disabling selling wasn't a necessity in any way whatsoever. It wouldn't have solved any problem at all, and would only add an extra problem for customers who wish to exit their positions.
I think the next step, then, is to observe that I don't see how this can be characterized as a case of Robinhood getting out over their skis. Gamestonk looks for all the world to me like it was a black swan event that nobody could have anticipated. And the amount of reserve money Robinhood's clearer required is, realistically, set by the clearer. I suppose technically Robinhood could have held more, but that seems like the kind of thing that no consortium of mere humans would ever actually do, right? Just something a monday morning quarterback might say they should have done.
Yep. That's why RH wasn't the only major brokerage that disabled buying of GME on that day. They just got the most media coverage. Probably because most of superstonk users, I assume, used RH instead of other brokerages, or because RH was an easy target for the media.
Webull, Schwab, IB, and some other brokers restricted GME trading activity during that time as well, here is a list with details on each major brokerage someone on WSB has compiled[0]. I cannot verify all of those myself, but I can confirm that Webull definitely restricted it as well, as I used it myself during that time period. But that little fact wouldn't support the whole "shadow cabal" conspiracy theory though, so it gets conveniently omitted in almost every discussion of it by superstonk users.
0. https://www.reddit.com/r/wallstreetbets/comments/l6xlw3/robi...
To be fair exchanges do that all the time (ie. trading halts).
The SEC report says the short squeeze drove the initial price action, but retail attempting to chase the short squeeze drove the majority of the price increase when RH was shutting down trading. (Graph on page 28 or 29 of the SEC report shows this).
This subject is infuriating to discuss, nobody understands the basics of why it happened!!