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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

#71

Post by KaiserPro »

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)

yes, because there are two parts to the trade:

1) the contract

2) the paying of the money

There are ancillary bits as well like unwinding of mistakes.

The problem is this, moving money fast is hard. It can be done, but its far cheaper to settle up at the end of the day, when the total inflow/outflow is calculated.

But crucially there isn't enough liquid capital to service this level of actual transaction.

Re: It’s Time for Real Time Settlement

#72

Post by imcoconut »

This is robinhood's fault.

He's not wrong that instant (or same day) settlement would be better than T+2, but there were plenty of other brokers that did not restrict trading. This was a liquidity issue for robinhood. This is a risk you run being a "cool startup that moves fast and breaks things" in the arena of securities trading. Additionally, Some of the bugs they've experienced are absurd in the context of a broker that potentially houses people's entire liquid net worth, including a bug that reversed the direction of trades - "oh you meant to sell those shares? whoops!"[0].

Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world, eg JP Morgan or Bank of America Merrill Lynch - they have literal trillions in assets each and neither has these issues. I appreciate that robinhood pioneered zero commission trades, but that has been largely adopted by the industry at this point. From my standpoint I only see risks versus their peers and precisely zero benefits.

I implore everyone here to stay far away from robinhood.

[0] https://www.nytimes.com/2021/02/02/technology/robinhood-ceo-...

Re: It’s Time for Real Time Settlement

#73

Post by dbt00 »

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...

Social media companies often check for things that are against the TOS when a media storm is brewing, this is not new. They're trying to stay ahead of negative press.

Re: It’s Time for Real Time Settlement

#74

Post by duxup »

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...

Robinhood's actions could be independent of whatever happened with Facebook and Discord.

Re: It’s Time for Real Time Settlement

#75

Post by swampthing »

bobthebuilders wrote: post #66
swampthing wrote: post #59

Earlier quoted context omitted.

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

Occam's razor. The fact that someone said take down WSB is way simpler than any alternative.

Certainly, writing that is simpler than writing out the reasons behind 3 separate events. But I think Occam’s razor is more about actual simplicity, and would cut against arguing that there was an elaborate conspiracy that involves multiple large companies acting against their own interests.

Re: It’s Time for Real Time Settlement

#76

Post by tmnstr85 »

When you're getting your face rearranged in one corner of the boxing ring, very often the body tries to naturally move to another corner.

Settlement cycles and market censorship are two separate things. It's on robinhood to make sure they can meet the same liquidity standards that banks have been "stress tested" for ever since 2008. Keep in mind that it wasn't 3 years ago where T+2 was just a dream.

Real time settlement is going to be driven by centrally governed organizations and their market counterparts (DTCC / SWIFT).

Re: It’s Time for Real Time Settlement

#77

Post by PeterisP »

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?

For cash, pretty much every country has a functioning real time gross settlement system that manages to do essentially instantaneous non-reversible commits by default and carries all the large payments and the netting settlements for all kinds of smaller bundled payments. Yes, there are risks, errors and fraud - but if that's manageable for very, very large amounts of cash, why wouldn't it be for stock?

Re: It’s Time for Real Time Settlement

#78

Post by Miner49er »

tylerhou wrote: post #51
Miner49er wrote: post #42

Earlier quoted context omitted.

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?”

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

It was the highest shorted stock on the market. That is "generally not that high"?

I think the fact that retail investors were able to cause a short squeeze on it, that cost shorts many billions of dollars, is an indication that it was over shorted.

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

There needs to be balance to everything; one of the naturally occurring risks of shorting is a short squeeze. Messing with that would ruin the risk/reward balance of shorting. Shorting creates more longs, and therefore drives the share price down. The risk of a short squeeze is a good way to prevent people from opening an extremely high number of shorts, and artificially driving the price down this way.

Re: It’s Time for Real Time Settlement

#79

Post by bitcharmer »

dbt00 wrote: post #73
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...

Social media companies often check for things that are against the TOS when a media storm is brewing, this is not new. They're trying to stay ahead of negative press.

Yes and no, by banning WSB social media created negative press too. There's an implication: "if they got banned then there must be something wrong with them; probably racist or nazis".

Re: It’s Time for Real Time Settlement

#80

Post by astrange »

IgorPartola wrote: post #69
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 simple issue that I saw with RH is that they restricted the ability to buy stocks like GME but not the ability to sell. It’s one thing to freeze the stock in place. It’s an entirely different thing to basically create a situation where your actions drive the price down while only letting investors sell. I will be honest I don’t entirely grasp the situation, but this seems to me like it was not just a bad PR situa…

They didn't do anything wrong, they are not allowed to restrict sales, and they were forced to restrict buys because you can't get $3 billion collateral overnight.
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