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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

#231

Post by tptacek »

gher-shyu3i wrote: post #195
kasey_junk wrote: post #189

Earlier quoted context omitted.

I had an interesting conversation with someone who took the view that all short positions were ursary. They had well thought out & logically reasoned from their premises arguments to back that up. I was really glad to hear their position. It filled me with dread because it would destroy our current agricultural industry. And as much as I recognize the problems with it, “a large percentage of the population starving r…

> who took the view that all short positions were ursary It's more than usury. There is usury involved because "lending" the stock is done with interest. However, the problems don't stop there. Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. This isn't how a stable society should be set up. Furt…

This simply doesn't make sense. When nobody is incentivized to correct stock prices downwards, you just get injustices in the opposite direction. You can look at the private markets to see what this looks like: Theranos.

Re: It’s Time for Real Time Settlement

#232

Post by rank0 »

clarkmoody wrote: post #163

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

They also have insane fees and require partnerships with banks to do so. Visa and Mastercard make this possible for Coinbase. Its kind of funny these crypto exchanges are supposed to decentralize our finances but end up relying on the same centralized financial institutions that brokers also use.

I can also perform trades and instantly have access to the money on my TDA account.

Re: It’s Time for Real Time Settlement

#234

Post by totalZero »

krick wrote: post #162

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?

T+0 means securities and funds change hands instantaneously (or maybe EOD) rather than on the present two-day lag. That two-day process is managed by a clearinghouse that requires members like Robinhood to put up large amounts of money, which Robinhood doesn't have in spades, for clearing and collateral. He's trying to blame that requirement for Robinhood's most recent miserable failure.

Re: It’s Time for Real Time Settlement

#235

Post by cameldrv »

psychlops wrote: post #203
satellite2 wrote: post #196

Earlier quoted context omitted.

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.

SWIFT doesn't handle settlement. Settlement usually happens through a series of correspondent banking relationships.

Re: It’s Time for Real Time Settlement

#236

Post by danhak »

tptacek wrote: post #231
gher-shyu3i wrote: post #195

Earlier quoted context omitted.

> who took the view that all short positions were ursary It's more than usury. There is usury involved because "lending" the stock is done with interest. However, the problems don't stop there. Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. This isn't how a stable society should be set up. Furt…

This simply doesn't make sense. When nobody is incentivized to correct stock prices downwards, you just get injustices in the opposite direction. You can look at the private markets to see what this looks like: Theranos.

The law of supply and demand doesn't require shorting in order to "correct" prices downward. The counterpoint to your Theranos example is the fact that Enron existed too. Both of them were fraudulent. Both collapsed after some number of years. One privately held, one publicly-traded and shortable. Same outcome, no?

I can't (directly) short the price of strawberries at my farmer's market, or the cost of rent in my small town, or the prices of artwork at an auction house. Price discovery seems to work reasonably well in all these venues. What is with this canard that shorting is necessary for price discovery to occur? There is no such requirement in the law of supply and demand.

Re: It’s Time for Real Time Settlement

#237

Post by gher-shyu3i »

tptacek wrote: post #231
gher-shyu3i wrote: post #195

Earlier quoted context omitted.

> who took the view that all short positions were ursary It's more than usury. There is usury involved because "lending" the stock is done with interest. However, the problems don't stop there. Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. This isn't how a stable society should be set up. Furt…

This simply doesn't make sense. When nobody is incentivized to correct stock prices downwards, you just get injustices in the opposite direction. You can look at the private markets to see what this looks like: Theranos.

This is a fallicious argument. Just because we don't allow people to engage in predatory practices, does not automatically mean that everything else is being run correctly. We don't correct one injustice with another.

For those injustices in the opposite, we need to set proper rules and hold people accountable. I mentioned several times in this thread that the current financial system is fundamentally broken, big part of which is because it heavily relies on interest, which pushes people to commit even more injustices like the example you mention.

Re: It’s Time for Real Time Settlement

#238

Post by satellite2 »

psychlops wrote: post #203
satellite2 wrote: post #196

Earlier quoted context omitted.

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.

Swift is only a communication protocol it doesn't solve the clearing problem.

The clearing problem is really at its core about avoiding to move cash and how to transfer debt between two entities that don't know (and trust) each other, as far fetched as it sounds.

When you transfer $1 to a friend of yours that is at another bank, your bank owes you one less dollar and your friend's bank owe him one more. But aginst what? The promise by your bank to pay it with a physical dollar (or some other better debt) in the future. But if you are with a small bank, your friend's bank might not trust it. So the they use a bigger bank that both trust that act as an intermediary and that lends for a very small rate as it is a 100% collateralized debt. This is the definition of clearing.

Re: It’s Time for Real Time Settlement

#239

Post by tptacek »

gher-shyu3i wrote: post #237
tptacek wrote: post #231

Earlier quoted context omitted.

This simply doesn't make sense. When nobody is incentivized to correct stock prices downwards, you just get injustices in the opposite direction. You can look at the private markets to see what this looks like: Theranos.

This is a fallicious argument. Just because we don't allow people to engage in predatory practices, does not automatically mean that everything else is being run correctly. We don't correct one injustice with another. For those injustices in the opposite, we need to set proper rules and hold people accountable. I mentioned several times in this thread that the current financial system is fundamentally broken, big par…

I responded to your comment because I follow Kasey's comments; I didn't notice your comment upthread suggesting that you believe the entire concept of debt needs to be eliminated. I apologize for replying to you, because I don't think there's any productive conversation we can have.

Re: It’s Time for Real Time Settlement

#240

Post by totalZero »

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.

Robinhood Instant's model doesn't actually require a customer to have settled funds to make that $300 purchase, so Robinhood has to pay for the $300 until the customer's deposit clears.

Separately, when someone with Robinhood Gold buys shares on margin, that purchase is financed in part with Robinhood's funds. Look up "initial margin" and "maintenance margin" to understand why. This involves some risk for Robinhood, because assets can sometimes lose value faster than Robinhood can sell them to preserve its equity.

Finally, Robinhood is a clearing member and has to put up money as insurance to keep the clearinghouses capitalized in case some bad juju goes down in the markets and Robinhood hits the skids.

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