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Robinhood is facing nearly 50 lawsuits over GameStop frenzy

nytimes.com

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Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#101

Post by OJFord »

cortesoft wrote: post #74
cwhiz wrote: post #32

I don’t really care what the rules are. Arbitrarily preventing people from buying, but not selling, is market manipulation. Any company that took part in this should be dismantled. If you need to halt trading because of liquidity requirements, halt all trading.

It wasn't arbitrary. There is huge risk for brokers when very volatile stocks are bought at heavy volume. The risk is not there when selling stock. The companies backing the risk RH was taking rightfully asked for more collateral, and RH wasn't able to come up with it. It was in no way arbitrary.

Better, it's reduced.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#102

Post by firebird84 »

dangerbird2 wrote: post #47
fractionalhare wrote: post #37

Earlier quoted context omitted.

> Melvin capital and several other hedge funds engaged in naked short selling, and many backbone clearing houses enabled it via share counter fitting. (naked short selling is illegal) No they didn't. Naked short selling is different from short selling while the short interest is high.

To clarify, People incorrectly assumed that because the short interest to float percentage was over 100%, the hedge funds had to be naked shorting. This is not true at all: because of how short selling works, there can be more than one short sale tied to a single share. Seller A borrows a share, sells it to buyer B. Buyer B then leases the share to Seller C, who then short sells it. This is not a naked short, but a p…

This is exactly it. It's basically fractional reserve banking all over again, except that instead of dollars, we use shares.

It may be in the national interest to impose "reserve requirements" on brokerages in order to prevent too much perversion of market prices.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#103

Post by TameAntelope »

dlgeek wrote: post #83
MH15 wrote: post #53

Currently Robinhood won't send me my tax forms from 2020. I have a trivial amount of money in the account but it's the only thing preventing me from filing taxes yet. Everything else has been ready since early March.

That's not a Robinhood thing, that's based on the investments you had in it. A lot of those have a March 1st or March 15th deadline (depending on type) to get their tax reporting done and reported back, and your broker is blocked on finalizing their forms until they finish those.

Another great example of Robinhood getting blamed for things it can’t control.

Being the retail face of a complex industry apparently results in you getting blamed for the complexity.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#104

Post by dangerbird2 »

nix0n wrote: post #87
dangerbird2 wrote: post #47

Earlier quoted context omitted.

To clarify, People incorrectly assumed that because the short interest to float percentage was over 100%, the hedge funds had to be naked shorting. This is not true at all: because of how short selling works, there can be more than one short sale tied to a single share. Seller A borrows a share, sells it to buyer B. Buyer B then leases the share to Seller C, who then short sells it. This is not a naked short, but a p…

> With the exception of market makers, this is illegal Do you mean, this is legal for market makers? Is there any other way that the number of shares being shorted, could be greater than the number of shares in existence?

> Do you mean, this is legal for market makers

Yes. They need to be able to make naked shorts, as this is what allows traders to buy a share without having a willing seller at any given moment and vice versa.

> Is there any other way that the number of shares being shorted, could be greater than the number of shares in existence?

As I mentioned, It's perfectly cromulent to have multiple non-naked shorts on the same shares, so the short interest as a percentage of float can certainly exceed 100% without any illegal behavior. I imagine the reason for this misconception is that people think of a short as an "anti-share" that can't exceed the number of shares being traded, when it's really a more abstract investment tactic or contract.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#105

Post by mlrtime »

notyourday wrote: post #92
nix0n wrote: post #87

Earlier quoted context omitted.

> With the exception of market makers, this is illegal Do you mean, this is legal for market makers? Is there any other way that the number of shares being shorted, could be greater than the number of shares in existence?

> Do you mean, this is legal for market makers? Yes, market makers are allowed to sell short without having a locate. It should be noted that the market makers will attempt to zero out their total exposure by the end of the trading session.

That should be DMM or PMM or the equivalent designation by the exchange. These are special appointments, you can't just call yourself a market maker and sell short.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#106

Post by mlrtime »

pwnguin wrote: post #77
unethical_ban wrote: post #68

Earlier quoted context omitted.

I'm not a big fan of "RH should protect people more" They clearly did not have the finances available to provide the service they offer. Regardless of whether that was forced on them, the outcome was RH's failures manipulating a market. RH should be fined and sued out of existence. I also don't see the value in short selling. Seems like a way to gamble legally in all 50 states.

Short selling is absurdly risky, but selling put options should probably remain allowed.

Probably? Selling short a put is long the stock.

I'm glad we aren't creating SEC rules based off of peoples' feelings.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#107

Post by mlrtime »

omgJustTest wrote: post #16
VoodooJuJu wrote: post #11

I'm pretty skeptical of the negative attention Robinhood is receiving. It seems like the entities who actually acted in bad faith, the ones who attempted illegal shorts, are trying to divert attention. Like someone else said, Robinhood is just the fall guy here.

Hard to hear. Robinhood has normalized pay for flow, a service that is literally shaving cash off each order in exchange for “free trading”. Pff can only generate net revenue by making traders pay more per trade than actual best execution, which Robinhood is suppose to be legally required to deliver. The SEC in the 90s and 2000s thought the practice amounted to middle manning traders and should be illegal. Basically:…

When RH sells to a internalizer for payment (PFOF) it is always inside the NBBO (National Best Bid and Offer) which is always going to be a better price than what you would receive on a public exchange AND there are 0 commissions.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#108

Post by dangerbird2 »

firebird84 wrote: post #102
dangerbird2 wrote: post #47

Earlier quoted context omitted.

To clarify, People incorrectly assumed that because the short interest to float percentage was over 100%, the hedge funds had to be naked shorting. This is not true at all: because of how short selling works, there can be more than one short sale tied to a single share. Seller A borrows a share, sells it to buyer B. Buyer B then leases the share to Seller C, who then short sells it. This is not a naked short, but a p…

This is exactly it. It's basically fractional reserve banking all over again, except that instead of dollars, we use shares. It may be in the national interest to impose "reserve requirements" on brokerages in order to prevent too much perversion of market prices.

Aside from being all but unenforcable, Restricting short selling like that will almost certainly cause stocks to become overvalued. Short selling is an important balance on overvalued stocks, and there are cases like the Enron scandal where short sellers were the first to detect a company is engaging in fraudulent behavior[1]. Restricting short selling would allow companies cooking the books to keep their stock values at artificial levels despite investor skepticism

[1] https://en.wikipedia.org/wiki/Enron_scandal#Timeline_of_down...

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#109

Post by jcranmer »

rkagerer wrote: post #98
jcranmer wrote: post #67

I've read a couple of the lawsuits on courtlistener. From what I've read, these lawsuits are going to go absolutely nowhere. The biggest problem most of the lawsuits face is that there is a provision in the Terms of Service that basically says that Robinhood can prevent you from trading in any stock it wishes. Any complaint that amounts to "Robinhood violated its contract" is going to go down in flames as a result--i…

Have any claimants presented compelling arguments for the judge to throw out that contract provision?

In short, no, not that I've seen. However, there also hasn't particularly been much of a reason to yet--there haven't been any motions that need argumentation, and the defense (Robinhood) hasn't responded yet to the cases.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#110

Post by SilasX »

gitdown42 wrote: post #41
VoodooJuJu wrote: post #11

I'm pretty skeptical of the negative attention Robinhood is receiving. It seems like the entities who actually acted in bad faith, the ones who attempted illegal shorts, are trying to divert attention. Like someone else said, Robinhood is just the fall guy here.

Robinhood deserves negative attention, but not for restricting trades to closing-ony. That appears to not have been much of a choice. They do deserve a lot of negative attention for running a brokerage in a way that invited a lot of risk-ignorant retail traders to instantly trade into leveraged positions for which they should never have been qualified in the first place. Robinhood has the valuation it does because it…

I don't think the inviting was where it went wrong, but in having a criminally bad UX that deceives those same naive users. Like executing your purchase as a margin buy without making clear it is a margin buy that can be sold out from under you:

https://news.ycombinator.com/item?id=25962906

Or the suicide from the kid who didn't understand his position wasn't actually extremely negative.

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