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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

#101

Post by Miner49er »

imcoconut wrote: post #72

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 brok…

I think this is jumping the gun. Robinhood takes some fault yes, but why are people ignoring the DTCC/clearinghouses role in this?

It seems they raised deposit requirements potentially more than was standard. This needs to be investigated.

WeBull's CEO claimed their clearinghouse told them to stop selling these securities (no mention of deposit requirements). If they really weren't even given an option to deposit more, that seems to me to be an abuse of power by the clearinghouse.

Finally, was the DTCC not having the long side cover the risk on the short side? It seems to me, the vast majority of the risk was on the shorts. The short side seemed to be made up of mostly large hedge funds, so if one went down, it would have been extremely difficult for the DTCC to front the cash on all of their trades, and of course shorting has infinite risk. The long side was finite, was distributed among multiple brokers and then even more distributed among retail investors. It seems like the risk was low there.

Re: It’s Time for Real Time Settlement

#102

Post by elihu »

kelnos wrote: post #20
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.

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.)

That may have been an issue in some cases, but even if RH had all the money in hand, they aren't (if I understand correctly) allowed to use their customer's money as collateral. So, RH has to put up their own money as collateral, and it's tied up for two days. They apparently didn't have enough funds to do that, given the trade volume they were experiencing. Also, under normal conditions the collateral requirements would have been a lot less.

Re: It’s Time for Real Time Settlement

#103

Post by topspin »

What are the incentives?

T+0 would enable the Robinhoods of the world. Are the big players and the regulators they've captured and the legislators they've paid for interested in enabling Robinhood et al. after the events of last week?

DOA.

Re: It’s Time for Real Time Settlement

#104

Post by tptacek »

Is Robinhood an "industry leader"? T+0 settlement would be an enormous change. Is there any reason every other participant in the market would care what Robinhood thinks about settlement? They were just shown to be too small to participate fully even with their small slice of retail investors.

Re: It’s Time for Real Time Settlement

#105

Post by JumpCrisscross »

Miner49er wrote: post #101
imcoconut wrote: post #72

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 brok…

I think this is jumping the gun. Robinhood takes some fault yes, but why are people ignoring the DTCC/clearinghouses role in this? It seems they raised deposit requirements potentially more than was standard. This needs to be investigated. WeBull's CEO claimed their clearinghouse told them to stop selling these securities (no mention of deposit requirements). If they really weren't even given an option to deposit mor…

> they raised deposit requirements potentially more than was standard

What is your source for this?

DTCC collateral requirements are calculated using, more or less, a fixed, predictable formula. And the DTCC isn't the ultimate creditor in these arrangements. They are drawing on lines of credit from banks, who are ultimately taking the credit risk of the collateral being insufficient for settlement.

Re: It’s Time for Real Time Settlement

#106

Post by mike_d »

ABeeSea wrote: post #57
mike_d wrote: post #26

Earlier quoted context omitted.

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.

If it was a regulatory requirement, then they should have been put in to receivership immediately. Being unable to meet colleterial requirements means they extended credit beyond their means.

Re: It’s Time for Real Time Settlement

#107

Post by throw0101a »

kolbe wrote: post #36
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.

> Government, though.

Equities clearing and settlement is done privately:

* https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...

If the members of the DTCC want to have it done faster, they'll request it. There's been talk, but it involves everyone agreeing to it and changing their internal workflows as well AFAICT.

Re: It’s Time for Real Time Settlement

#108

Post by srcreigh »

swampthing wrote: post #59
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?

Nope. I'm curious about the clearinghouses (DTCC). Robinhood explains the general process in a post from 4 days ago [1].

It would be great to see more details for the DTCC's increase in the amount of required collateral. I tried Googling for some info but didn't find much (probably haven't tried hard enough yet) ex [2].

Naively, what we saw was a failure of the financial system to support trades. It may not be Robinhood, but it may not necessarily be T+2 either.

Is there a website I can use to query the current deposit requirements for GME? Is it public info? Are there details provided for factors affecting that amount that can be compared across different stocks?

I'm a total noob please forgive my noob curiosities :)

[1]: https://blog.robinhood.com/news/2021/1/29/what-happened-this...

[2]: https://dtcclearning.com/products-and-services/settlement/se...

Re: It’s Time for Real Time Settlement

#109

Post by stouset »

paxys wrote: post #91
imcoconut wrote: post #72

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 brok…

> Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world The biggest reason is that none of those world class institutions can actually build a functioning smartphone app

Vanguard’s app works fine for me.

Sure it’s not gamified or meme-ready but maybe “investing your life savings” as a category shouldn’t be?

Re: It’s Time for Real Time Settlement

#110

Post by Spivak »

unethical_ban wrote: post #87
ZephyrBlu wrote: post #49

Earlier quoted context omitted.

It _was_ by the book and they _should_ have seen it coming. "How do clearinghouses determine how much is required? It’s pretty technical, but the process basically works as follows: clearinghouses look at a firm’s customer holdings as a portfolio. They use a volatility multiplier, looking at specific stocks, to quantify their risk. The clearinghouse may assign significant additional charges based on how much of one s…

Do you agree, then, that RH should be punished, if not dismembered as an entity, for incompetence leading to billions in stock losses?

If RH is eventually found to have stopped trading on GME in purpose to manipulate the price then sure let the SEC draw and quarter them. But RH wouldn't be so severely punished for having downtime and this is basically that.
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