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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

#161

Post by ralph84 »

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)

Say the national best bid and offer (NBBO) is: Bid: $10.45 Ask: $10.55

You place a limit buy order at $10.55 for 100 shares.

$0 commission broker that sells order flow: Your order is routed to the market maker buying your broker's order flow. They sell you the 100 shares for $10.55 since it's within your limit and within the NBBO spread.

$5 commission broker: Your broker attempts to price improve by searching multiple liquidity sources and gets a hit at the NBBO midpoint: $10.50.

In both cases you paid $5 for the trade.

Re: It’s Time for Real Time Settlement

#162

Post by krick »

I'm really ignorant about all this securities trading stuff. Can somebody enlighten me to what this change actually means? Or maybe point to some "beginners guide", after which I'd understand what he is talking about?

Re: It’s Time for Real Time Settlement

#164

Post by kasey_junk »

TopInvestor wrote: post #143
wtf_is_up wrote: post #121

Earlier quoted context omitted.

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.

This is terrible advice. if your slippage risk is such that you aren’t protected by NBBO you have absolutely no business on a retail broker of any sort. Meanwhile limit orders minimizes the most likely risk a retail trader has to overcome. Either you don’t understand the advice you were given, you were duped or you are trying to be duplicitous.

In any case, terrible advice to be repeating in the context of retail trades.

Re: It’s Time for Real Time Settlement

#165

Post by gher-shyu3i »

JumpCrisscross wrote: post #120

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…

> Not Treasuries. Cash

The way it should be. The quicker we do away with interest bearing and yielding assets, the better. It's the cause of the vast majority of the economic mess we're in today. We've literally known about this issue for thousands of years, interest and usury have been prohibited in Islam, Christianity, and Judaism. We still think we're smart and not going to be bitten by the dangers of interest, yet that won't happen.

Re: It’s Time for Real Time Settlement

#166

Post by JumpCrisscross »

kridsdale1 wrote: post #156
JumpCrisscross wrote: post #105

Earlier quoted context omitted.

> 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.

Vlad said live on air (in Clubhouse) in conversation with Elon Musk on Sunday that the clearinghouse increased their requirements from (IIRC) 30% to 100%, and that the formula for calculating that was "not transparent" and had a component that was "a multiplier based on their opinion". 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 ma…

> had a component that was "a multiplier based on their opinion"

I'll chalk this up to colloquialism. The DTCC has very little discretion in what they do. That's why they're trusted to do it.

The "opinion" component could be a reference to their line of credit banks, who adjust the rates they charge the DTCC based on their varied risk models. There is a valid argument that there isn't as much transparency in that layer as there could be. But that isn't relevant to this case.

Any off-the-shelf collateral cost estimation tool should have told you, given GME's realized volatility in the week prior to the fiasco, that it was a high clearing risk. If the CEO is getting blindsided by the DTCC at 3AM, it's a oversight of internal controls.

> RH negotiated with them all Thursday last week and reduced the required payment from $3B to ~$0.7B

Negotiating collateral requirements involves netting out trades and delaying settlement on some trades and accelerating settlement on others. It does not involve recomputing collateral rules. (The DTCC can't recompute collateral rules for one member over another.)

Re: It’s Time for Real Time Settlement

#167

Post by kasey_junk »

ralph84 wrote: post #161
wtf_is_up wrote: post #121

Earlier quoted context omitted.

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

Say the national best bid and offer (NBBO) is: Bid: $10.45 Ask: $10.55 You place a limit buy order at $10.55 for 100 shares. $0 commission broker that sells order flow: Your order is routed to the market maker buying your broker's order flow. They sell you the 100 shares for $10.55 since it's within your limit and within the NBBO spread. $5 commission broker: Your broker attempts to price improve by searching multipl…

This is not at all how NBBO works. Effectively all retail brokers sell order flow and if they dont they still dont have any obligation to improve your price beyond NBBO.

Re: It’s Time for Real Time Settlement

#168

Post by [deleted] »

kelnos wrote: post #21
hehehaha wrote: post #3

I don’t even know what to say about this. It doesn’t sound like he learned his lessons at all. He’s calling for real-time settlement which is not practical for equities. On top of that he completely dismissed RH’s root problems: very loose margins and new account standards. I was defending RH on HN last week but I have to reconsider.

> He’s calling for real-time settlement which is not practical for equities. Why not? In most cases share ownership is just a row or two in some database. If you can update those in real time (which you should; a legacy system that doesn't support this can be upgraded, even if at significant cost in implementation and testing), and do instant (or near-instant) funds transfers, you should be able to settle within minu…

[deleted]

Re: It’s Time for Real Time Settlement

#169

Post by _trampeltier »

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...

I also don't think it's the 100% truth. First, I don't understand why you couldn't buy just some stocks. If RH really had not enough money, you couldn't buy any stock. Second, when you buy stocks on RH or any other exchange, you have to have the money on there on the account. So the money is there. There is no risk on the long side at all. Third, RH was not the only one, suddenly several exchanges have the same problem at the same time .. no I don't think so.

Re: It’s Time for Real Time Settlement

#170

Post by totalZero »

kridsdale1 wrote: post #156
JumpCrisscross wrote: post #105

Earlier quoted context omitted.

> 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.

Vlad said live on air (in Clubhouse) in conversation with Elon Musk on Sunday that the clearinghouse increased their requirements from (IIRC) 30% to 100%, and that the formula for calculating that was "not transparent" and had a component that was "a multiplier based on their opinion". 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 ma…

DTCC has higher requirements for concentrated positions than for other uncleared CNS positions. Couple this with Robinhood laying out its own capital to fund margin trades and Robinhood Instant trades, and you've got some pretty aggressive capital commitments.

  (PROCEDURE XV)
  288
  II. if the absolute value of the largest non-index position in the portfolio
  represents more than 30 percent of the value of the entire portfolio (the
  “concentration threshold”), an amount determined by multiplying the gross
  market value of such position by a percentage designated by the
  Corporation, which percentage shall be not less than 10 percent. Such
  percentage shall be determined by selecting the largest of the 1st and
  99th percentiles of three-day returns of a composite set of equities, using
  a look-back period of not less than 10 years that includes a one-year
  stress period,2 and then rounding the result up to the nearest whole
  percentage.
  The concentration threshold would be no more than 30 percent, and would
  be determined by the Corporation from time to time and calibrated based
  on the portfolio’s backtesting results during a time period of not less than
  the previous 12 months.
Also, the fact that the man running Robinhood gave out material nonpublic information on a a private podcast with a billionaire says a lot about his judgment, in my opinion.
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