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It’s Time for Real Time Settlement

blog.robinhood.com

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Re: It’s Time for Real Time Settlement

#31

Post by ZephyrBlu »

zaroth wrote: post #4
hehehaha wrote: post #3

I don’t even know what to say about this. It doesn’t sound like he learned his lessons at all. He’s calling for real-time settlement which is not practical for equities. On top of that he completely dismissed RH’s root problems: very loose margins and new account standards. I was defending RH on HN last week but I have to reconsider.

Robinhood got called up at 3am with an extortion demand for $3 billion due that morning, unless they shut off Buy orders of GME. The collateral call had nothing to do with Robinhood’s ability to pay for the orders it was placing. The problem was the GME short sellers were insolvent at the prices the stock was trading at, and contagion from the hedges failing would have left the clearinghouse looking at billions in lo…

Sorry, what? I can't tell if you're serious.

Robinhood didn't get extorted, their clearinghouse told them they needed more capital to secure further $GME trades, because the volatility has been off the charts.

Vlad even states this in the article!

> Clearinghouse deposit requirements skyrocketed overnight

...

> The clearinghouse deposit requirements are designed to mitigate risk

Re: It’s Time for Real Time Settlement

#33

Post by Barrin92 »

ssivark wrote: post #8

Out of curiosity, are there any reasons to prefer slower settlement? (Since this seems like a no-brainer, but clearly hasn’t happened already)

I'd say the first reason is staring us right into the face, it disincentivizes actors on the market from engaging in exactly the kind of nonsense that is divorced from fundamentals we've seen over the last few weeks playing out on Robinhood.

Re: It’s Time for Real Time Settlement

#35

Post by justlurkin12 »

hehehaha wrote: post #15
justlurkin12 wrote: post #5

Earlier quoted context omitted.

dumb question, why is not practical? As for the root problems, those are not related to the issue from last week (not sure if you're aware, but margin had no factor in play with the DTCC requirements).

There are many reasons but most importantly, delayed settlement serves as fraud deterrent and error/exception handling. Should be T+1 same as options. Think of it as a database, do you want instantaneous non-reversible commits by default when transactions number in the billions with known error rate? Or perhaps have a reasonable buffer for safety?

T+0 implies same day not instant. I think you can enable all of those features with hours of delay instead of days.

Re: It’s Time for Real Time Settlement

#36

Post by kolbe »

300bps wrote: post #11

US Equities recently changed from T+3 to T+2: https://www.sec.gov/news/press-release/2017-68-0 There are many types of securities that are already settling at T+0.

It blew my mind when they went from T+3 to T+2. I couldn't fathom why they would go about changing it, but not go to overnight settlement. Government, though.

Re: It’s Time for Real Time Settlement

#37

Post by unethical_ban »

hehehaha wrote: post #15
justlurkin12 wrote: post #5

Earlier quoted context omitted.

dumb question, why is not practical? As for the root problems, those are not related to the issue from last week (not sure if you're aware, but margin had no factor in play with the DTCC requirements).

There are many reasons but most importantly, delayed settlement serves as fraud deterrent and error/exception handling. Should be T+1 same as options. Think of it as a database, do you want instantaneous non-reversible commits by default when transactions number in the billions with known error rate? Or perhaps have a reasonable buffer for safety?

Why are reasonable buffers done in days? Why should fraud prevention be done by lag, rather than proper IAM?

And non-malicious errors are reversible.

Re: It’s Time for Real Time Settlement

#38

Post by justlurkin12 »

mike_d wrote: post #26
zaroth wrote: post #4

Earlier quoted context omitted.

Robinhood got called up at 3am with an extortion demand for $3 billion due that morning, unless they shut off Buy orders of GME. The collateral call had nothing to do with Robinhood’s ability to pay for the orders it was placing. The problem was the GME short sellers were insolvent at the prices the stock was trading at, and contagion from the hedges failing would have left the clearinghouse looking at billions in lo…

Which is why you push back and tell the clearinghouse to make a public statement to that effect. The CH is faced with two options: One, make the statement and hurt a public reputation they don't care about in the first place. Or they could cut off all trading to RH, which puts RH on the same side of the fight as they have been trying to market themselves as being on from the beginning. Win win.

Actually if RH didn't wire over the funds, they would be dissolved due to illiquidity.

Re: It’s Time for Real Time Settlement

#39

Post by marcinzm »

kzrdude wrote: post #32

Robin hood has been called so many strange names and then gets no recognition when they want to strike at the root of the problem.

Robinhood knew A was the case when it did B. Given A, B can cause really bad things. Then it failed to properly communicate as the bad things started to happen. Now it's blaming A rather than its decision to do B or its failure to communicate.

Re: It’s Time for Real Time Settlement

#40

Post by hinkley »

Would it make sense for securities places to charge each other interest for unsettled trades? You’d make more profit then if you could settle your trades faster, making it more carrot than stick.

Something like the overnight rate banks charge each.

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