151–160 of 445 posts
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.
Out of curiosity, are there any reasons to prefer slower settlement? (Since this seems like a no-brainer, but clearly hasn’t happened already)
There are reasons to prefer settlement is not instantaneous - eg it makes fat finger trades easier to unwind. There are also probably some special cases like creation/destruction of ETF shares, ADRs, IPO greenshoe etc which take a bit longer to work through. But I think the main reason for these changes being slow to occur is because noone wanted to break the system in the process - the settlement process for share t…
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…
> 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. I see two solutions here, either they sell the treasures (with also instant settlement) and then buy, or they could trade on margin backed by the securities.…
Treasuries don't instantly settle or clear. They clear next day. We could discuss changing that, but it's about nine hundred times more complicated than overhauling the entire stock market.
> or they could trade on margin backed by the securities
This shifts the entire market's credit risk to the banks. Which banks love. (Getting away from that is why we built clearinghouses.)
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…
The guy who allowed his service to store passwords as plaintext[1] says “There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time.” -- pardon my fucking skepticism of the deep technical knowledge he must possess to make such a bold assertion
[1] https://techcrunch.com/2019/07/24/robinhood-stored-passwords...
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.
RH negotiated with them all Thursday last week and reduced the required payment from $3B to ~$0.7B. So it sure seems like the DTCC made an arbitrary decision to jack up systemic safety cushion that resulted in the RH clients turning very sour.
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…
It all comes down to making informed decisions. If you're just using RH for "playing around" with some surplus money, this lack of liquidity shouldn't be as important for you (as compared to, e.g., the ease of use, or low fees...). However, if you're using RH in a "serious" capacity, this (reliability) should definitely be something to seriously consider, since you may not have the guarantees that you can take for granted with traditional players.
The true problem with the RH situation is the lack of transparency throughout. It really does no good (and comes off as very "slimy") if third parties have to expose their business model or why they're having issues. A little transparency would have gone a long way for people to be sympathetic to the startup. But then again, I guess that harms the "magic" factor of a startup.
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…
“That same week, Robinhood released software that erroneously reversed the direction of customer trades, which meant that a bet on a stock going up was turned into a bet that it would go down. Mr. Tenev oversaw technology.
Technological issues continued piling up. In 2019, customers discovered that Robinhood’s software accidentally allowed them to borrow almost infinite amounts of money to multiply their stock bets. Last March, as the pandemic hit the United States and the stock market gyrated wildly, Robinhood’s app seized up for almost two days, leading some customers to lose more than $1 million.”
I like disruptive businesses. But sometimes I think SV fetishizes the “move fast and break things” mantra without understanding that it may sound cool without appropriately acknowledging the risk it brings.
I’m sometimes labeled as a codger but it makes me cringe when people espouse that attitude on projects that can ruin someone’s livelihood let alone on safety critical code that can end someone’s life
Earlier quoted context omitted.
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?
Most countries do not settle in real-time, or even close to it. Even ones moving towards it are still allowing 5 - 15 minute windows on settlement.
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.
1) Custom initiates $300 purchase of some stock.
2) RH sends customer's $300 to counterparty.
3) After receiving the $300 and before delivering stock to RH, counterparty goes belly up.
Forbidding RH to use customer funds in that manner prevents that race condition.