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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

#321

Post by swampthing »

amluto wrote: post #309
swampthing wrote: post #173

Earlier quoted context omitted.

They are legally prohibited from using the customer's funds for the deposit requirements.

Do you have a citation for this? I found an relatively old FINRA document that sort of seemed to say the opposite, but it wasn’t obviously in reference to stocks and I think it also predated Dodd-Frank.

Not a primary source, but: https://stu2b50.dev/posts/why-robinhood-d3580b

> Brokers cannot use client money to satisfy their clearing fund obligation. So whether or not the accounts had a settled balance didn't matter - as you can see from the other brokers which halted buys and did not have "instant transfers".

Re: It’s Time for Real Time Settlement

#322

Post by tptacek »

stjohnswarts wrote: post #312
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

When humans did all the trading, it cost drastically more to trade, all that money went directly into the pockets of market insiders, and the whole market was crooked as a barrel of fishhooks. Google "odd eighths scandal".

Re: It’s Time for Real Time Settlement

#323

Post by themihai »

paulpan wrote: post #289
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…

110% agreed. This is a near-textbook example of "just because you can doesn't mean you should". The simple reason in this age of high frequency trading and massive amounts of money being moved around, a tiny arbitrage opportunity could instantly be magnified and trigger a system (market) crash. Whereas these crashes can and do occur today, the non-realtime aspect of settlement and clearing mitigates to a large extent…

If we are at this maybe we should abolish high frequency trading as well along with the PFOF? The whole scheme looks like some malware program.

Re: It’s Time for Real Time Settlement

#324

Post by kasey_junk »

TopInvestor wrote: post #263
kasey_junk wrote: post #164

Earlier quoted context omitted.

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 tra…

I don’t give any advice. I was probing to see the reaction . It is amusing to look at postings glorifying the pundits advice. They are not your friend. Have you actually placed a limit orders? Do you practice this advice with your own $’s? Do you know how much taxes you pay for a trade considered day trading? If the limit order is executed same day it is considered day trading. What is the point then? Why retail inve…

I spent years writing HFT trading systems. I’ve built back testing systems that actually worked. I’ve been out of the industry for more than five years and every order I’ve sent since I left (all through retail brokers including RH) have been limit orders.

I’m going to guess that I’ve spent more time in front of a real market feed than you trying to divine how the orders are impacting the book but who knows.

All that said I’d love to subscribe to your newsletter and learn the secrets to why limit orders have a different tax treatment than market orders.

Also for the record market orders tell the market you have no price sensitivity. If your newsletter could tell me how that’s better for retail investors I’d appreciate it.

Re: It’s Time for Real Time Settlement

#325

Post by JumpCrisscross »

swampthing wrote: post #281
JumpCrisscross wrote: post #271

Earlier quoted context omitted.

> Had they not raised that capital, they would have just had to keep blocking those buys, but they would have been fine otherwise This is not my understanding. The 3AM phone call was a collateral call. That covers existing trades. As a clearing broker, when they sent in the trade they created the liability.

That sounds plausible, but even then, if Robinhood couldn't meet the new deposit requirements, I think the existing trades just wouldn't settle (and obviously they wouldn't be accepting new ones)? I'm not seeing how Robinhood would have gone bankrupt in such a situation.

> if Robinhood couldn't meet the new deposit requirements, I think the existing trades just wouldn't settle (and obviously they wouldn't be accepting new ones)?

Defaulting on clearing obligations is the old school way for a brokerage to go under. The moment that happens, customers’ funds and assets are segregated and what is left goes into receivership. The parent company would then file for bankruptcy protection to avoid being stripped for the broker-dealer.

The point of a clearinghouse is that trades always settle. Certainty in that is paramount. Individual members’ survival is secondary. Which makes sense since it aligns interests.

Re: It’s Time for Real Time Settlement

#326

Post by paxys »

totalZero wrote: post #201
paxys wrote: post #61

Earlier quoted context omitted.

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…

I can transfer $100K (or maybe more) from my bank into Vanguard right now and trade using it instantly while they wait 3-5 days for the deposit to clear. It is definitely a common practice among the larger brokers.

Re: It’s Time for Real Time Settlement

#329

Post by ostrophonics »

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 isn't how a stable society should be set up

and why not? antifragile systems gain stability as they endure shocks. why not cyclically generate then destroy business? makes it easier to funnel resources to the top, because only the biggest - i.e., the most moneyed, hence the most liquid, hence best reactive to risk, hence most stable - firms can survive.

you may not like it morally, but two centuries of corporate history leave little to gainsay empirically about this notion.

Re: It’s Time for Real Time Settlement

#330

Post by lazide »

swampthing wrote: post #281
JumpCrisscross wrote: post #271

Earlier quoted context omitted.

> Had they not raised that capital, they would have just had to keep blocking those buys, but they would have been fine otherwise This is not my understanding. The 3AM phone call was a collateral call. That covers existing trades. As a clearing broker, when they sent in the trade they created the liability.

That sounds plausible, but even then, if Robinhood couldn't meet the new deposit requirements, I think the existing trades just wouldn't settle (and obviously they wouldn't be accepting new ones)? I'm not seeing how Robinhood would have gone bankrupt in such a situation.

Not being able to cover your obligations with current cash flow (the situation where they would be defaulting on their obligations for existing trades they submitted) is pretty much the definition of bankruptcy, isn’t it?
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