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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

#311

Post by astrange »

IgorPartola wrote: post #300
astrange wrote: post #294

Earlier quoted context omitted.

They effectively were "out of GME stock". They usually have to put up 10% (or something) per share collateral with DTCC to send out more buys, but the volatility meant that it went up to 100% collateral, so they couldn't afford to allow purchases. This happens based on a formula where one of the factors is GME being the #1 stock being purchased that day on RH. > It seems to me that when stock is volatile is exactly w…

Ok so they essentially couldn’t trade outside their own system? Or are trades inside their own platform still subject to clearing through the clearing house?

I think they could have traded within their own platform (not 100% sure), but customer interest in buying was so high that they weren't able to fill trades that way. Other brokers had more sales and that's why they didn't have to restrict buys as hard, although they did still restrict them.

Re: It’s Time for Real Time Settlement

#312

Post by stjohnswarts »

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…

I agree, what I personally think needs to change is high speed/algorithmic trading on the millisecond (microsecond?) level. It should be humans trading, not machines. Sure they can listen to the machines but at the end of the day it should be on human time, say at least 10 minutes for transactions to complete without possibility of any changes to the transaction

Re: It’s Time for Real Time Settlement

#313

Post by jaycroft »

PeterisP wrote: post #58
olejorgenb wrote: post #24

Earlier quoted context omitted.

I still don't get why customer capital can't be used as collateral. Which scenario is this rule protecting the customer from?

So customer A is doing stuff where you need to put up a collateral with some counterparty. You can't use customer B's money (this is a key assumption that might be missing - it's all about the use of other customers money) for that collateral because, well, that collateral might not get returned in certain cases - that's kind of the point of having a collateral. You'd lose that collateral if the counterparty goes bel…

But why can't customer B's money be used as collateral for customer B's trades? I guess because the collateral is all comingled when it is supplied to the clearinghouse?

Re: It’s Time for Real Time Settlement

#314

Post by auntienomen »

tomp wrote: post #194
JumpCrisscross wrote: post #122

Earlier quoted context omitted.

> The DTCC demanded $3 billion. Robinhood negotiated down to $1.4 billion. If done by the formula, how is this possible? Netting out trades.

Which is such a basic idea that it’s impossible that they didn’t come up with it themselves and had to be schooled by Vlad. It’s like the “smart guy” having an insightful moment in a sci-fi movie: “I got it, we’ll use gravity assist !” Astrophysics 101.

I think the point is that Robinhood made a promise to net out trades, by bringing some balance to the buys and sells in their book.

Re: It’s Time for Real Time Settlement

#315

Post by rank0 »

gher-shyu3i wrote: post #213
rank0 wrote: post #209

Earlier quoted context omitted.

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 fina…

> Capitalism is predicated on the ability to loan out money. If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on interest bearing loans, we see it all the time with people waiting for the next crash to happen. > No debt means no credit for new businesses Not true. There are moral alternatives. If you want to sta…

> If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on interest bearing loans

Yes we should all switch the current economic system which has been the root cause of societal development. And we should switch to a fairy-tail system which you describe but miraculously does not and has not ever existed. One where people will lend out money for free! Why don't you start us off? I'd like a free loan please.

> Not true. There are moral alternatives. If you want to start a business, pitch your idea to investors who are willing to put in money in exchange for a portion of the company.

This is hilarious because its just another form of lending which in fact does yield interest. How do you think the investors will track ownership of the company? Shares which appreciate aka big bad interest.

> There are alternatives that don't involve interest. You see it all the time in the auto industry where they have 0% loans.

There are strings attached to those loans and the average auto loan absolutely has a non-zero interest rate. We are currently experiencing a massive auto loan bubble. Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history.

https://www.thedrive.com/news/33065/zero-percent-financing-a...

> Raise capital in an ethical way.

I think you are confused. The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower?

> Great empires were built without interest.

Like which?

At the end of the day, nobody is going to lend money without financial incentive. Why accept the risk? If you disagree then ask yourself why aren't you loaning out YOUR money for free? I will happily accept a free loan.

Re: It’s Time for Real Time Settlement

#316

Post by mattnewton »

kasey_junk wrote: post #280
mattnewton wrote: post #262

Earlier quoted context omitted.

I also don’t think short selling as it is currently practiced is a net social good, but I don’t know anything about it’s importance in the agricultural sector. What does short selling provide there?

All futures contracts contain a “short” position. In its most basic a producer of the commodity agrees to sell in the future at a certain price now. This locks in their profit but is only useful to them if they are trying to hedge the price being worse in the future. They are borrowing a future position to make it tenable to produce now. Without it most agriculture would be too risky to engage in (without a governmen…

I am not an expert but this seems different from the short selling we're talking about. In short selling of a stock, the stock is borrowed and sold immediately for profit. There is no productive action the short seller engages in to recover the stock, they just rebuy it on the open market, or not at all if the company has gone bankrupt.

If you are really stretching it, they can produce research that shows the stock should be worth less in this time, without committing any crime- which means it is based entirely on public information the market already has. Bashing a company could be considered a productive activity we are incentivizing from a certain point of view. But their incentives are all towards tearing down the underlying security.

In the agricultural example, the person selling the futures to their goods has to actually produce the goods. While someone might be borrowing the stock to resell it, ultimately the end farmer has to produce new value to deliver on their future contract. Otherwise, they would just sell futures to their crops, and then take their money to do nothing! But this is exactly what someone who short sells a stock does. They take the money, and they just sit around waiting for the stock to drop, no doubt resisting the urge to make it drop themselves through legally gray methods to increase their profits.

Re: It’s Time for Real Time Settlement

#317

Post by themihai »

Miner49er wrote: post #101
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…

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…

All of them are at fault. The broker, DTCC and the hedge funds. The market is not functioning as a free market or "it is rigged" for various reasons.

The CEO of the biggest brokerage company says he has halted the "buy" side because it wanted to protect his clients(hedge funds) and his money and it will resume the trading when the prices reaches $17. If you dig deeper you may find that the DTCC/clearinghouses may have a vested interest in a specific position as their investors may be invested in that position (i.e. short).

Of course there might have been just a risk management issue and no collusion but in practice and in essence as well this was just a way to save the hedge funds(the client)'s money and ripoff the retailers(the product).

[0] https://www.youtube.com/watch?v=7RH4XKP55fM

Re: It’s Time for Real Time Settlement

#318

Post by kasey_junk »

totalZero wrote: post #305
kasey_junk wrote: post #197

Earlier quoted context omitted.

You can make a lot of money proving that. Nanex made a bit of a cottage industry whistleblowing on that sort complaint.

There's no money in proving that different brokers have varying execution quality, and it's not a regulatory requirement to execute instantaneously. I'm not sure how Nanex figures into it; there's nothing nefarious involved. If I am in New York and I send a limit buy order to Schwab that is two cents through the offer, Schwab may route my order to a market-maker in Chicago who uses a decision model to either take the…

Let’s be clear are you sending routed orders in this case?

Are you suggesting that limit orders are filling but at a different price than expected or not filling at all?

The reason Nanex is important is that they’ve made bank on proving that risk systems and broker latency don’t matter when enforcing reg nms.

Neither does order volume. If you can accurately track execution to the point where you can see slippage (not on the broker report cards) you can make money on that info.

None of that is to say different brokers don’t have different slippage just that in aggregate if you can accurately calculate it you a) have no business trading through a retail broker (and you know it) and b) there is money to be made in compliance that doesn’t take on trade risk.

Re: It’s Time for Real Time Settlement

#319

Post by neltnerb »

vageli wrote: post #307
gher-shyu3i wrote: post #279

Earlier quoted context omitted.

You can take out a loan on an existing mortgaged asset after you built some equity into it, especially if the asset increased in price during that period. You don't have to have paid it off. It goes to show how evil the entire setup is. It's basically laying domino blocks, the moment something happens, the entire thing collapses.

> You can take out a loan on an existing mortgaged asset after you built some equity into it, especially if the asset increased in price during that period. Is not a mortgage very similar to owning X% of a thing? Like, if I had a mortgage for $100,000 and I've paid $10,000 towards it, it's almost akin to owning 1/10 of the house (which would play out in the event of liquidation, all other things equal). That real est…

You sound like you're defining "development" when you talk about the difference between the future and present values of something. But I guess if the people actually doing the development pay interest to the people they got money from to do the development then it is... interest to some degree? Of course that results in less net development (due to the interest paid) but am I at least describing it in a way you recognize as accurate?

Re: It’s Time for Real Time Settlement

#320

Post by tptacek »

IgorPartola wrote: post #299
tptacek wrote: post #292

Earlier quoted context omitted.

The money you put up to buy a stock is your money. SEC rules require that it be kept segregated. It is at no point available for your brokerage to post as collateral for its own risks. DTCC protects brokerages from each other . Brokerages post collateral to insure each other in case a brokerage fails, and the customers, at other brokerages, on the other sides of the trades from the failed broker, need to be made whol…

So would instant clearing help with this? If I am able to spend my $15 and the exchange of equity for cash is atomic then this becomes less of a problem?

If you eliminate the credit risk between brokers, you lower the capital requirements for brokerages. But you create other problems. I don't have any opinions about it; I would just form my opinions by reading whatever 'JumpCrisscross says, so I refer you there.
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