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Analysis: Robinhood protected from lawsuits by user agreement, Congress

reuters.com

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Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#41

Post by MattGaiser »

bmitc wrote: post #32
gruez wrote: post #15

Earlier quoted context omitted.

Probably because those are theoretical losses. The previous paragraph is also relevant: >However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts. As mentioned in other threads, robinhood wasn't able to come up with the deposit needed…

But there is the possibility that Robinhood was also cutting trading to appease Citadel, who to my understanding, just happened to re-engage their short positions right before Robinhood cut buying to Gamestop stock. If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.

Because anyone buying right away after funding an account or selling the same day as buying is buying on margin. Margin is used to make a lot of the "instant" stuff happen. True cash accounts make them difficult to use for the day trading these people like to do.

https://finance.zacks.com/tax-rules-use-proceeds-stock-sales...

https://www.fidelity.com/learning-center/trading-investing/t...

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#42

Post by midasz »

malwarebytess wrote: post #33
kleton wrote: post #7

Earlier quoted context omitted.

Each FINRA arbitration case would be expected to cost the company up to 10,000 in fees. If anywhere near the 100,000 users who left negative reviews on the Google Play store for the app file an arbitration and pay the filing fee, Robinhood will absolutely go bankrupt. If you are/were a Robinhood user: https://www.finra.org/arbitration-mediation/initiate-arbitra...

I think there's a very good chance the reviews were not organic, but instead automated.

Highly doubt that, and wonder why you'd even think that - it's a pretty big movement with vocal users, submitting a review because you got scammed (which is what happened) is a very low threshold.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#43

Post by csmiller »

boatsie wrote: post #8
ericmay wrote: post #4

Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users. Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too. This will be fascinating to watch. Can the repair the brand damage? I’m skeptical. Is there any similar scenari…

I seriously doubt it will be even a blip on their radar. In fact, I think this will be their “no such thing as bad publicity” moment and they will have massive growth. People have short memories (no pun intended) and the switching costs are also nontrivial.

What are the switching costs? Seems fairly trivial to move assets between brokerages.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#44

Post by maest »

vertis wrote: post #25
ericmay wrote: post #4

Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users. Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too. This will be fascinating to watch. Can the repair the brand damage? I’m skeptical. Is there any similar scenari…

I don't have a Robinhood account, and I'm not involved in the GME/WSB stuff, but I would think twice about opening a Robinhood account now. Indeed, it's been educational about which brokers are using other clearing houses (sorry if I get the terminology wrong), and which are direct. But then badly behaved businesses like Godaddy don't seem to suffer or go out of business, so I suspect Robinhood won't have too many lo…

This is not the first time RH has gone down during critical moments in the market.

Yet their userbase grows and their users come back. They'll be fine.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#45

Post by MattGaiser »

Alex3917 wrote: post #23
gruez wrote: post #15

Earlier quoted context omitted.

Probably because those are theoretical losses. The previous paragraph is also relevant: >However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts. As mentioned in other threads, robinhood wasn't able to come up with the deposit needed…

> As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades. That's not true, they only blocked trades on those specific stocks. If it was really a liquidity issue then they could have rate limited all trades equally regardless of the stock in question.

Those particular stocks had their deposit requirements increase, not all stocks.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#46

Post by elliekelly »

bmitc wrote: post #32
gruez wrote: post #15

Earlier quoted context omitted.

Probably because those are theoretical losses. The previous paragraph is also relevant: >However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts. As mentioned in other threads, robinhood wasn't able to come up with the deposit needed…

But there is the possibility that Robinhood was also cutting trading to appease Citadel, who to my understanding, just happened to re-engage their short positions right before Robinhood cut buying to Gamestop stock. If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.

> If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.

Because DTCC requires cash collateral while the transaction is settled whether the transaction happens in a margin account or a cash account. There's no distinction from DTCC's perspective. DTCC (reportedly) increased the collateral on $GME transactions to 100% of the transaction price compared to the typical 1-3% of the price.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#47

Post by koolba »

hehehaha wrote: post #21
ericmay wrote: post #4

Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users. Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too. This will be fascinating to watch. Can the repair the brand damage? I’m skeptical. Is there any similar scenari…

To be honest, people will eventually return. RH is the cost leader by a wide margin and its very unique to its business model via data arrangement with Citadel. In aggregate, total savings they pass down to retail traders is in the billions. With options trading at all time high, savings for 2020 was likely in tens of billions. Edit: upon looking at some aggregate data via OCC, appears I overestimated savings.

Don’t Fidelity, E*TRADE, Ameritrade, and just about it everyone else have zero commission trades now?

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#48

Post by alasdair_ »

mdoms wrote: post #38
malwarebytess wrote: post #33

Earlier quoted context omitted.

I think there's a very good chance the reviews were not organic, but instead automated.

Got any evidence for that?

Some circumstantial evidence would be the apple app scores not having the same magnitude of response.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#49

Post by jcranmer »

mdorazio wrote: post #5

"It will be hard to prove users suffered as a result of Robinhood’s measures because GameStop and other stocks covered by the curbs fell sharply on Thursday after the restrictions were announced, said James Cox, a professor at Duke Law School." Wait, what? Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their…

> Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users?

Very probably. The general principle of Article III jurisprudence is that you have to demonstrate concrete, particularized harm to bring a case, not generalized, theoretical harm.

If your allegation is that your harm arises from "I could have made a killing if I bought and sold the stock at appropriate times," well that is theoretical harm (especially when you undercut buy alleging that you could have done so on other platforms). You'd probably have to allege that you attempted to buy (alternatively, sell) the stock and Robinhood prevented you from doing so, but the fact that you signed a contract saying that you acknowledge that Robinhood can prevent you from being certain stocks is going to be a challenging hurdle to overcome.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#50

Post by triceratops »

bmitc wrote: post #32
gruez wrote: post #15

Earlier quoted context omitted.

Probably because those are theoretical losses. The previous paragraph is also relevant: >However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts. As mentioned in other threads, robinhood wasn't able to come up with the deposit needed…

But there is the possibility that Robinhood was also cutting trading to appease Citadel, who to my understanding, just happened to re-engage their short positions right before Robinhood cut buying to Gamestop stock. If the story about Robinhood running out of money is true, why wouldn't they just ban buying on margin and not all buying? I don't understand that.

Maybe Citadel knew about RH's difficulties and timed their moves accordingly. For smart person who knows how RH's model works (I am neither, btw), which I'm sure Citadel employs many of, it wouldn't have been hard to predict.
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