Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

It’s Time for Real Time Settlement

blog.robinhood.com

Post reply on HN
Print view View original

51–60 of 445 posts

Re: It’s Time for Real Time Settlement

#51

Post by tylerhou »

Miner49er wrote: post #42
Barrin92 wrote: post #33

Earlier quoted context omitted.

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.

Was that not just the market correcting itself? The stock was extremely over shorted, and the price rose to shake out the shorts. I think short squeezes need to be allowed to happen properly. If we don't want that, we would need to limit short selling.

Why do you think the stock was “over shorted” apart from the fact that short interest is generally not that high?

Or — what do you think are the bad consequences of “over shorting?”

Re: It’s Time for Real Time Settlement

#52

Post by [deleted] »

hinkley wrote: post #40

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.

[deleted]

Re: It’s Time for Real Time Settlement

#53

Post by LatteLazy »

choeger wrote: post #12
silverfox17 wrote: post #10

Earlier quoted context omitted.

Probably blockchain

They could mitigate by using a quantity of ML and mix in some good old-fashioned Big Data. As a side note, we need a defined unit for the quantity of hiptech in a software project. I propose one AI (= 100 Microservices).

Don't forget the eye-of-newt... ;)

Re: It’s Time for Real Time Settlement

#54

Post by paxys »

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.

The whole episode has been a case study for how not to handle PR. Robinhood lost the public narrative every step of the way, and all their statements were late, lacking in detail and even contradictory. Remember the now-famous "we don't have a cash flow problem" statement from their CEO, right before they had to borrow a billion dollars to stay in business?

Re: It’s Time for Real Time Settlement

#55

Post by [deleted] »

stu2b50 wrote: post #23
kelnos wrote: post #20

Earlier quoted context omitted.

Wasn't a big part of this issue fueled by RH fronting the money for trades when the customer was transferring money into their account from a bank over ACH? Making ACH instant (which I believe is in the works) would solve that, not T+0 for settlement. (I don't have a good feel for what was the bigger driver of RH's issues though: overextension because of slow ACH or slow trade settlement.)

No, brokers must front collateral to clearing firms simply because there's no inherent reason to trust any of the firms will have their capital or equity obligations in T+2 days. ACH transfers and margin, although possible reasons why a firm wouldn't have funds, are not the direct reason, which is DTCC requirements.

[deleted]

Re: It’s Time for Real Time Settlement

#56

Post by Barrin92 »

Miner49er wrote: post #42
Barrin92 wrote: post #33

Earlier quoted context omitted.

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.

Was that not just the market correcting itself? The stock was extremely over shorted, and the price rose to shake out the shorts. I think short squeezes need to be allowed to happen properly. If we don't want that, we would need to limit short selling.

the market is probably very soon going to return Gamestop to its actually reasonable evaluation, so the market didn't change.

What changed was Citadel (who is actually Robinhood's customer, not the retail investors) and Silver Lake making a bunch of money off retail investors while a lot of people who bought in at the top are going to be fleeced.

No value was created in this process or valuable information exchanged. It's basically market-makers and other hedge funds benefiting from volatility caused by a stupid hedge fund and retail investors going crazy. And the reason Robinhood wants all that real-time trade so bad is because Citadel pays them for order flow, that is their actual business, not you trading on their app.

Re: It’s Time for Real Time Settlement

#57

Post by ABeeSea »

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.

I don’t think it was the CH’s choice. I believe the collateral requirements are set in Dodd-Frank.

And financial firms don’t go j to extended bankruptcies when they run out of cash like other companies. They immediately go into receivership and/or liquidation. Trying to play chicken with the CH would have just ended RH as a company pretty much immediately.

Re: It’s Time for Real Time Settlement

#58

Post by PeterisP »

olejorgenb wrote: post #24
justlurkin12 wrote: post #18

Earlier quoted context omitted.

Real time securities wouldn't need brokerages to front collateral while the trades settle by the virtue of no settling period. They would only have to deal with customer capital used to buy the stock.

I still don't get why customer capital can't be used as collateral. Which scenario is this rule protecting the customer from?

So customer A is doing stuff where you need to put up a collateral with some counterparty.

You can't use customer B's money (this is a key assumption that might be missing - it's all about the use of other customers money) for that collateral because, well, that collateral might not get returned in certain cases - that's kind of the point of having a collateral. You'd lose that collateral if the counterparty goes belly up (insolvency, fraud, whatever), and, most importantly, you'd lose that collateral if you become insolvent. That's not OK - this is regulated so that you are required to ensure separation of "your money" from "customers money that you're holding on their behalf", so that the customer's money is untouched and unclaimed even you go bankrupt. It's not your money, it's the customer's money that you're investing on their behalf, so you can't put it up as repayment or collateral for your liabilities; and you can't put one customer's money as repayment or collateral for another customer's liabilities.

Re: It’s Time for Real Time Settlement

#59

Post by swampthing »

srcreigh wrote: post #50

I'm not entirely buying this T+2 narrative. It does not explain why Discord [1] and Facebook [2] were censoring WSB last week. [1]: https://www.theverge.com/2021/1/27/22253251/discord-bans-the... [2]: https://www.newsweek.com/facebook-robinhood-stock-traders-gr...

Does there have to be one single explanation for 3 separate events?

Re: It’s Time for Real Time Settlement

#60

Post by ummonk »

paxys wrote: post #54
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.

The whole episode has been a case study for how not to handle PR. Robinhood lost the public narrative every step of the way, and all their statements were late, lacking in detail and even contradictory. Remember the now-famous "we don't have a cash flow problem" statement from their CEO, right before they had to borrow a billion dollars to stay in business?

Right, and it is noteworthy to compare the PR from Webull in response to similar issues.

RobinHood’s PR problems are entirely self-inflicted.

Post reply on HN