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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

#351

Post by yellowstuff »

jpambrun wrote: post #340
tptacek wrote: post #322

Earlier quoted context omitted.

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".

You can't access this high speed trading. This is the toy of billionaires that can afford microwave link between New York and Chicago and have dedicated teams of FPGA developers to write high speed network stacks with trading logic embedded in them. This is what the parent comment was talking about.

HFT trade with retail. Your comment doesn’t make much sense.

Re: It’s Time for Real Time Settlement

#352

Post by swampthing »

ashtonkem wrote: post #346
swampthing wrote: post #345

Earlier quoted context omitted.

If you own a car, you should know that you could be in a catastrophic accident at any time based on the behavior of others. If you are driving lawfully and someone t-bones you out of nowhere and you die, did you make a mistake in your driving?

A better analogy is that you should know that driving is dangerous and therefore keep insurance. But again, dealing with changing margin requirements is a core part of the job when you run a brokerage, especially for margin accounts. They didn’t do their jobs right, and they want to blame someone else.

It sounds like you think that what happened is related to margin accounts. I don't think that is accurate (see the blog post this thread is on).

Robinhood does keep the equivalent of auto insurance, by the way of the deposits they make with the DTC (and probably other measures). So the analogy is that you keep insurance, and you suffer some catastrophic accident due to some crazy driver coming out of nowhere. Are you at fault?

But I do agree that they didn't do their job, with respect to PR / communications. And I agree that this blog post seems designed to mitigate the effects of that.

Re: It’s Time for Real Time Settlement

#353

Post by zaptheimpaler »

paxys wrote: post #91
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…

> Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world The biggest reason is that none of those world class institutions can actually build a functioning smartphone app

Actually the biggest reason is RH was the first to offer zero commission trading and a very simple UI. That led to a big customer base of new traders. Lots of free marketing by those newcomers on social media and the inertia of switching brokerages kept the flywheel going. This incident was bad enough to make people get over the inertia of switching, others now offer zero commission trading, so RH is going to bleed customers as a result.

The other apps may not be quite as easy to use for someone who has never traded before, but the basics of trading and options have been democratized enough that it is probably no longer enough of a moat.

Re: It’s Time for Real Time Settlement

#354

Post by swampthing »

lazide wrote: post #330
swampthing wrote: post #281

Earlier quoted context omitted.

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?

You could call it that, but these are obligations that appear to have been unilaterally decided by the DTC without prior notice. As far as I can tell, any brokerage using the DTC could potentially suffer the same fate if the stars aligned.

Re: It’s Time for Real Time Settlement

#355

Post by jb775 »

JumpCrisscross wrote: post #105
Miner49er wrote: post #101

Earlier quoted context omitted.

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…

> 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.

According to the RobinHood CEO, the formula used is opaque and secretive.

https://www.youtube.com/watch?v=2M7X2dsW_Xw&t=5m25s

Re: It’s Time for Real Time Settlement

#356

Post by TopInvestor »

kasey_junk wrote: post #324
TopInvestor wrote: post #263

Earlier quoted context omitted.

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…

Got it , just an observer working for the establishment. Why you didn’t invest your own $’s if your algo is so good? Other peoples’ money I know. Is that a real job? HFT is a scam. What about naked short selling (hft by other name )? Making money out of thin air? Selling something you don’t own? You did the hft for that too? What about GME now? 1.8 million missing shares . What your algos will do to the market? Crashing it?

Now the hedge funds are a joke, no? They aren't buying 50 million shares at 30c, nor $100, nor $300, and that's their problem. You can do hft all in nanoseconds - nothing is helping them. PRICE DOESN'T MATTER

How hft algo is helping the hedge funds now? The market will be never be the same , no hft , no newsletters , no apps will save it .

And this isn't a financial advice.

Re: It’s Time for Real Time Settlement

#357

Post by ashtonkem »

swampthing wrote: post #352
ashtonkem wrote: post #346

Earlier quoted context omitted.

A better analogy is that you should know that driving is dangerous and therefore keep insurance. But again, dealing with changing margin requirements is a core part of the job when you run a brokerage, especially for margin accounts. They didn’t do their jobs right, and they want to blame someone else.

It sounds like you think that what happened is related to margin accounts. I don't think that is accurate (see the blog post this thread is on). Robinhood does keep the equivalent of auto insurance, by the way of the deposits they make with the DTC (and probably other measures). So the analogy is that you keep insurance, and you suffer some catastrophic accident due to some crazy driver coming out of nowhere. Are you…

I'm not sure why you're acting like this is just something that came out of the blue and hit RH without any possible warning. They purposefully courted new, low information traders and gamified trading. Even before GME you could find complaints and warnings about how Robinhood was gamifying trading. And now they're surprised that this results in new trader behavior? Come on.

To complete the analogy, this is like deciding to go out and do unnecessary driving after midnight on new years eve. Maybe they're not legally at fault if they get hit by a drunk driver, but they sure as hell put themselves at a higher risk of this happening.

Re: It’s Time for Real Time Settlement

#358

Post by azinman2 »

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…

To build on this, I was wondering while reading the piece why is it we’re at T+2 today. It can’t just be from old standards when computers/networking was worse, otherwise we wouldn’t have only gone from T+3 to T+2. It would give them a lot more credibility in their argument if they illustrated the roadblocks, and why they’re not immutable.

Re: It’s Time for Real Time Settlement

#359

Post by swampthing »

ashtonkem wrote: post #357
swampthing wrote: post #352

Earlier quoted context omitted.

It sounds like you think that what happened is related to margin accounts. I don't think that is accurate (see the blog post this thread is on). Robinhood does keep the equivalent of auto insurance, by the way of the deposits they make with the DTC (and probably other measures). So the analogy is that you keep insurance, and you suffer some catastrophic accident due to some crazy driver coming out of nowhere. Are you…

I'm not sure why you're acting like this is just something that came out of the blue and hit RH without any possible warning. They purposefully courted new, low information traders and gamified trading. Even before GME you could find complaints and warnings about how Robinhood was gamifying trading. And now they're surprised that this results in new trader behavior? Come on. To complete the analogy, this is like deci…

Because that is basically what happened. There is a reason why WSB and GME have been in the news. It's because what happened is surprising. Sure, in hindsight, you can identify causes for the phenomenon. But if you rewind back to January 1, I don't think most of us would have predicted this at any level of certainty beyond a theoretical possibility.

I agree with you that Robinhood did put itself at higher risk of this happening, but I don't think that means they did something wrong. Just like I don't think most people would blame the innocent driver in your hypothetical. Who, if we were to make the analogy more applicable, might be an Uber driver trying to make some extra cash.

Re: It’s Time for Real Time Settlement

#360

Post by ashtonkem »

JumpCrisscross wrote: post #191
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.

> 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 Credit where it's due: ripping off the commission band-aid was overdue, and Robinhood single handedly caused it. And abridging T+2 is probably a good idea. (Though real-time settlement and clearing is probably not.) What's missing in their communications is the mea…

Getting rid of commission was actually probably a bad idea. It creates an expectation that a very complicated service should be free, and puts a lot of pressure on now free brokerages to find a new revenue source. There's a reason why RH is accused of helping Citadel front run their own customers.

This seems to me a lot like when VC backed startups artificially suppress prices below break even to push out competitors, with the intent to raise prices even more later. It's good for the consumer while they can get VC subsidized goods and services, then very bad for the consumer once the VC funds dry up.

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