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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

#201

Post by totalZero »

paxys wrote: post #61
kelnos wrote: post #20

Earlier quoted context omitted.

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.)

No, that was negligible. Robinhood actually fronts the least money out of all major brokers (something like $1000). And if that was the case the easy solution would be to block trades if your account didn't have the sufficient settled balance.

> Robinhood actually fronts the least money out of all major brokers (something like $1000).

None of the brokers I have ever used have ever fronted me money. If the required equity isn't going to be in the account by the settlement date, they won't spot me so much as a fiver.

There's an argument to be made that Robinhood Instant is a violation of federal margin regulations because it allows margin risk to be taken in an account with no settled equity.

Re: It’s Time for Real Time Settlement

#202

Post by swampthing »

u678u wrote: post #185

So new entrant joins industry, ruins pricing by giving product away for free, nearly goes under because it over extended itself, and then blames the rules. Yeah I'm sure everyone else wants to do what RH says.

"nearly goes under because it over extended itself" is not really accurate. They took the steps necessary to prevent that from happening, by blocking the behavior that would have led to that. Unfortunately, those steps, in combination with poor communication on Robinhood's part, and emotion, ignorance, and paranoia on the part of the general public, has led to a PR crisis for them.

Re: It’s Time for Real Time Settlement

#203

Post by psychlops »

satellite2 wrote: post #196
clarkmoody wrote: post #163

Side note: cryptocurrency exchanges perform brokerage, settlement, and clearing continuously and in real-time.

I'm going to simplify a bit, but there is a big difference in clearing crypto vs cash. Clearing crypto doesn't require debt because your broker directly sends the TX on chain. Doing the same with cash would require sending trucks of cash to their various clients banks throughout the day and would be prohibitely expensive. That's why clearing was invented. I.e. having the bigger banks lending to the smaller and allowi…

Clearing crypto doesn't require debt because the broker is doing an internal transaction. If done on-chain, it will be an atomic transaction. Neither require clearing with another firm.

Banks don't actually shuttle physical dollars back and forth as most transfer via SWIFT. The physical money banks need is only for teller withdrawals, ATMs or whatnot.

Re: It’s Time for Real Time Settlement

#204

Post by kasey_junk »

ralph84 wrote: post #186
kasey_junk wrote: post #167

Earlier quoted context omitted.

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.

> This is not at all how NBBO works Open to corrections > they still dont have any obligation to improve your price beyond NBBO But those that do price improvement use it as a marketing differentiator: https://www.fidelity.com/learning-center/tools-demos/trading... https://investor.vanguard.com/investing/online-trading/order... https://www.schwab.com/execution-quality https://www.tdameritrade.com/tools-and-platforms/…

Schwab, Fidelity, TD Ameritrade & IB all engage in PFOF. They all have free offerings.

Here is what robinhood advertises for their price improvement https://robinhood.com/us/en/about-us/our-execution-quality/

All NBBO improvement requires is that if you send an order through the book you’ll get the best price on NBBO. Even when Robinhood got fined it wasn’t for that, it was for promising better than their competitors and then putting it in writing that they were happy being worse than their competitors.

Re: It’s Time for Real Time Settlement

#205

Post by IgorPartola »

tptacek wrote: post #98
IgorPartola wrote: post #69

Earlier quoted context omitted.

The simple issue that I saw with RH is that they restricted the ability to buy stocks like GME but not the ability to sell. It’s one thing to freeze the stock in place. It’s an entirely different thing to basically create a situation where your actions drive the price down while only letting investors sell. I will be honest I don’t entirely grasp the situation, but this seems to me like it was not just a bad PR situa…

Legality aside, imagine being an RH customer with a $300/shr position in GME locked in. Look where the stock is now, and where it's heading.

Which is why they shouldn’t have restricted it at all. Volatility is the name of the game. If they can only trade equities with predictable prices they are probably in the wrong business.

And where the price is now is arguably the direct result of their actions. The price would be higher if they didn’t restrict buys while allowing hedge funds to gobble up the panicked sells from retail investors.

Judging by the sentiment on WSB it seems that this is far from over. Hedge funds have overshorted several stocks and those guys have figured out that if they simply buy up a large portion of the available stock they can name their price when the hedge funds need to buy to cover the shorts. It is of course impossible to quantify but casually looking at the posts, nobody is talking about selling GME at all, and every dip in price just means more retail investors can afford to buy into this. It’s a bubble for sure but it seems a lot of the users there are mostly interested in using it as a weapon against hedge funds more so than making money off it.

Re: It’s Time for Real Time Settlement

#206

Post by foolinaround »

There seems to be a consensus that Real time Settlement or even real time Clearing might not be feasible, without major risks.

Can someone explain what it took to move from T+3 settlement to T+2?

Why did they not go from T+3 to T+1?

Can clearing be real-time (or near real-time) with settlement happening overnight? Or do they need to be in sync?

Re: It’s Time for Real Time Settlement

#207

Post by JumpCrisscross »

swampthing wrote: post #202
u678u wrote: post #185

So new entrant joins industry, ruins pricing by giving product away for free, nearly goes under because it over extended itself, and then blames the rules. Yeah I'm sure everyone else wants to do what RH says.

"nearly goes under because it over extended itself" is not really accurate. They took the steps necessary to prevent that from happening, by blocking the behavior that would have led to that. Unfortunately, those steps, in combination with poor communication on Robinhood's part, and emotion, ignorance, and paranoia on the part of the general public, has led to a PR crisis for them.

It's as accurate as it is inaccurate. Had Robinhood not been able to find hundreds of millions of dollars of cash that day, they would have been declared insolvent.

Re: It’s Time for Real Time Settlement

#209

Post by rank0 »

gher-shyu3i wrote: post #165
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, ye…

This is absurd. Capitalism is predicated on the ability to loan out money. No debt means no credit for new businesses. No mortgages. Governments can't issue bonds to raise capital.

For all it's evils, our modern society and advancement as a species comes from capitalism. Society would literally collapse if we "do away with interest bearing and yielding assets."

That being said, we can still work to create better finance regulation.

Re: It’s Time for Real Time Settlement

#210

Post by justapassenger »

Forge36 wrote: post #125
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…

In the U.S. the Federal Reserve is already planning to support it. Thread discussing it from a few days ago.: https://news.ycombinator.com/item?id=25982987

It’s only for small money transfers, up to $25k last time I’ve looked at it.
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