It’s Time for Real Time Settlement • Hacker News Board

Re: It’s Time for Real Time Settlement

#111

Post by Miner49er » Tue, Feb 02, 2021, 9:45 PM UTC

JumpCrisscross wrote: post #105

Miner49er wrote: post #101

Earlier quoted context omitted.

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.

Not completely, they have the right to add charges. Take a look at this tweet:

https://mobile.twitter.com/KralcTrebor/status/13551753956420...

It seems that they used this right by the fact that Robinhood was able to negotiate their deposit [0]. The DTCC demanded $3 billion. Robinhood negotiated down to $1.4 billion. If done by the formula, how is this possible?

[0]: https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robin...

Re: It’s Time for Real Time Settlement

#112

Post by nprz » Tue, Feb 02, 2021, 9:45 PM UTC

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…

Zero commission trade is actually bullshit anyway. You end up losing more from inferior execution time than you would if you just paid the $5 per trade. Robin Hood also lied to users about this and ended up paying a $65 million fine[0].

[0]https://www.sec.gov/news/press-release/2020-321

Re: It’s Time for Real Time Settlement

#113

Post by mikegreen » Tue, Feb 02, 2021, 9:46 PM UTC

CyberRabbi wrote: post #41

> When people invest, they’re placing their hopes and dreams for the future in our financial system. We can’t let them down. This is probably generally true but that investment behavior is not what drove their clearinghouse failure. I wish they would quit it with the fluffy rhetoric. Why doesn’t Robinhood understand that we want straight answers from them.

But "When people invest" - This isn't investment behavior. This is speculation and most likely simple addiction to gambling behavior they drive and incent people to do.

Re: It’s Time for Real Time Settlement

#114

Post by robocat » Tue, Feb 02, 2021, 9:48 PM UTC

JumpCrisscross wrote: post #105

Miner49er wrote: post #101

Earlier quoted context omitted.

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.

“ Mr. Denier said that Apex was told by DTCC that collateral requirements had been raised on transactions for GameStop to near 100%.” - https://www.wsj.com/articles/gamestop-trading-restrictions-b...

Re: It’s Time for Real Time Settlement

#115

Post by LatteLazy » Tue, Feb 02, 2021, 9:48 PM UTC

tonfa wrote: post #90

LatteLazy wrote: post #44

It is. The EU has a road map to get it down to T+0 (same day) I believe. That's not real time but its a start...

It's probably the right tradeoff though? More possibility of internal netting for the broker with batching, sounds more efficient.

Yeah, I think end of day would be sufficient at least for now.

Maybe someone with more knowledge of the situation will correct me though. I think there can be counterparty risk issues (eg during the 2008 crash) that are removed by immediate clearing/settlement.

Re: It’s Time for Real Time Settlement

#116

Post by gonational » Tue, Feb 02, 2021, 9:48 PM UTC

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

I've been using the TD Ameritrade app (formerly "thinkorswim") since 2008, on an iPhone 3G, without issue.

Re: It’s Time for Real Time Settlement

#117

Post by throw0101a » Tue, Feb 02, 2021, 9:53 PM UTC

freeone3000 wrote: post #65

dan-robertson wrote: post #19

Earlier quoted context omitted.

Some ability to net—that is to buy at one price, sell at another, and only settle the difference—is probably desirable

Sure, but end of day settlement (like is practiced on TSX!) has all of the reasonable benefits of T+2 settlement, while still taking place in an understandable time frame.

If TSX = Toronto Stock eXchange, I do not think that is correct:

* https://www.tsx.com/news?id=533&year=2017

In Canada it's done by CDS Clearing and Depository Services Inc. (CDS) and is currently T+2 just like in the EU (2014) and US (2017).

A 2015 whitepaper discussing the (then) proposed change:

* PDF: https://www.cds.ca/resource/en/174

Re: It’s Time for Real Time Settlement

#118

Post by tristanj » Tue, Feb 02, 2021, 9:56 PM UTC

vmchale wrote: post #16

tristanj wrote: post #6

It's a good thing that DTCC aware of this issue and is looking into accelerating this to T+1 (followed by T+0) using blockchain and distributed ledgers. https://www.finextra.com/finextra-downloads/newsdocs/embraci... Edit: No clue why this is downvoted.

Why is blockchain involved?

It's a fundamentally better system. It allows all parties to know who owns what assets with extremely high statistical certainty.

Re: It’s Time for Real Time Settlement

#119

Post by h1srf » Tue, Feb 02, 2021, 9:56 PM UTC

naveen99 wrote: post #2

baby steps, maybe we can go to overnight settlement first. Robinhood please bring options on cme bitcoin futures to the masses.

Ccan you trade futures on RH yet? Why would they allow options on futures if they don't allow futures trades

Re: It’s Time for Real Time Settlement

#120

Post by JumpCrisscross » Tue, Feb 02, 2021, 9:57 PM UTC

Real time equities settlement and clearing is a terrible idea. It sounds great. But it breaks a lot of good stuff. I'm surprised the CEO of a brokerage is advocating for it. (The article is a bit loose with the terms settlement and clearing. Again, surprising from the CEO of a company that almost got taken out by internal clearing failures.)

If you only think about the American stock market from the perspective of a domestic retail day trader, sure, real-time clearing sounds easy enough. When you expand it to institutions, real-time settlement means having to warehouse all the funds they might need to trade with in a day with their prime brokers as cash. Not Treasuries. Cash. Because their broker has to be able to wire out that $1bn instantly. (That's what real-time settlement means. Real-time payments.) For market makers, this effectively requires removing their buyer of last resort obligations since they would be practically capped by their cash on hand. There are additional complexities when one considers foreign investors. Options exercises and expirations. ETFs. Futures.

Historically, the loudest advocates for shortening settlement times have been global money centre banks. A switch to real-time settlement and clearing would require every market participant either (a) have flawless payment rails to every other market participant or (b) put all their cash with a global bank who can provide that guarantee.

End-of-day or overnight clearing, on the other hand, isn't too much to ask for. It preserves the robustness and extensibility of delayed settlement. But it removes a few days of collateral requirements. Pushing for EOD clearing would be a smarter play for Robinhood, from a government relations perspective. (If this is solely PR then whatever.)