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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

#141

Post by sixstringtheory »

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.

"Simpler" is subjective and sort of beside the point of Occam's razor. The razor is about choosing the competing hypothesis with the fewest assumptions baked in.

"When you hear hoofbeats, think of horses, not zebras." A massively orchestrated conspiracy requires a lot of assumptions and so probably violates the razor.

Re: It’s Time for Real Time Settlement

#142

Post by pokot0 »

astrange wrote: post #89
pokot0 wrote: post #84

Earlier quoted context omitted.

They are diverting the attention from their core problem: lack of transparency. I had a RH account for years and I didn't know it was a margin account (be sure: I did not signup for their "margin" service). All RH account are margin accounts even if they feel like cash accounts (but with T+0 settlement). This is what triggered their cash problems and what drives people crazy now: a user feels they gave them 100$ to b…

This has nothing to do with being a margin account, it's DTCC requirements related to wanting to buy the same stock everyone else at the same broker also wants to buy.

My understanding is that it does. One example (there's more like the instant deposit): when you buy a stock with money from another sale not yet settled, you are basically using margin (a loan) and thus RH have cash requirements which are a % of the cost of the trade to be settled.

If you don't allow that, and only let people trade on a cash basis after the trades have been settled, you effectively have 100% of the money you need to settle the trades you closed.

Re: It’s Time for Real Time Settlement

#143

Post by TopInvestor »

wtf_is_up wrote: post #121
nprz wrote: post #112

Earlier quoted context omitted.

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

How is this possible when I use limit orders? (not a robinhood user btw, but pretend I am)

The general recommendation is never use limit orders - do not reveal your intention to the other side.

Re: It’s Time for Real Time Settlement

#145

Post by ssharp »

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

When the app can't do what it's supposed to do (buy/sell securities), the nicer interface is pointless.

Re: It’s Time for Real Time Settlement

#146

Post by hehehaha »

justlurkin12 wrote: post #35
hehehaha wrote: post #15

Earlier quoted context omitted.

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.

I can maybe see T-0. But I am pretty sure Vlad is talking about near real-time. Even with T-0, most of the trading is done in the last ten minutes at 3:50 EST (due to vwap). I don’t see the benefit in settling T-0 outweighing the value of safety net provided by extra time overnight.

Re: It’s Time for Real Time Settlement

#147

Post by TopInvestor »

amluto wrote: post #136

I have seen on Twitter that Robinhood was unable to use customer funds to satisfy clearing deposit requirements, but I couldn’t find an actual authoritative source on this. Is this correct? It seems to me that, to secure a $300 purchase buy a customer, Robinhood ought to be able to use that customer’s $300.

RH is giving a loan - these are margin accounts. That is why it had to raise $ billions.

Re: It’s Time for Real Time Settlement

#148

Post by tmotwu »

humanlion87 wrote: post #128
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…

If companies like Robinhood don't come along, how do you think disruption in the financial market will happen? If we always go back to the existing players, rate of innovation will be so slow (especially in the financial market). And it's obvious that startups will not have the same amount of assets that century old companies have. But JPMorgan or BofA did not earn their trillions overnight. In fact, we can even say…

I agree with your sentiment, but for people who have used RH for a while, this is basically par for the course as far as RH support/PR goes. I'm surprised people haven't dumped them in the past for their reliability issues, and they shouldn't get a pass for this event either. For instance, Amazon wasn't the first e-commerce or compute resource provider either. Their competency and dedication to customers have put them ten steps ahead.

Re: It’s Time for Real Time Settlement

#149

Post by atombender »

nprz wrote: post #112
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

"Not charging $5 per trade" implies that other brokerages such as Schwab, Fidelity, and TD Ameritrade — which haven't been penalized by the SEC — suddenly offered poorer order execution when they dropped their commissions, which by all accounts they did not. They all experienced declines in revenue.

What Robinhood did was to lie about their execution. They claimed their trade prices were as low as other brokerages, while in fact being much worse. SEC penalized them for (1) intentionally misleading customers and, in the words of the press release, (2) "failing to satisfy its duty to seek the best reasonably available terms to execute customer orders".

Unlike Robinhood, Schwab, Fidelity, and TDA all have popular real-time trading platforms where order execution quality is crucial.

Re: It’s Time for Real Time Settlement

#150

Post by ABeeSea »

mike_d wrote: post #106
ABeeSea wrote: post #57

Earlier quoted context omitted.

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.

They never went over the threshold because they turned off buying for the most volatile stocks.
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