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Robinhood reports 43% revenue decline

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Re: Robinhood reports 43% revenue decline

#201

Post by WoahNoun »

f-securus wrote: post #163
WoahNoun wrote: post #141

Earlier quoted context omitted.

Disabling sells and not letting someone exit a position is infinitely worse then not letting someone buy to enter a position. The latter is only theoretically harmed and has no case to sue; the former is provably harmed and can sue.

It is hard to say the latter is only theoretically harmed when the rising price was caused by retail FOMO (according to SEC report) and Robinhood managed the majority of retail orders....

It is a theoretical harm. Securities law focuses on "obviously lost money" such as not being able to sell at the highs when you own the stock. This is very different from the theoretical price ceiling caused by retail FOMO. Otherwise every person on earth could sue to claim they were harmed by not being able to buy.

From the SEC's POV, a single brokerage stopping buying still means there was an open market. Robinhood FOMOers used margin accounts and instant deposit feature to drive the price up until Robinhood could no longer afford the loans they were offering. Fidelity never stopped allowing buys because they could afford the settlement collateral.

Re: Robinhood reports 43% revenue decline

#202

Post by [deleted] »

f-securus wrote: post #163
WoahNoun wrote: post #141

Earlier quoted context omitted.

Disabling sells and not letting someone exit a position is infinitely worse then not letting someone buy to enter a position. The latter is only theoretically harmed and has no case to sue; the former is provably harmed and can sue.

It is hard to say the latter is only theoretically harmed when the rising price was caused by retail FOMO (according to SEC report) and Robinhood managed the majority of retail orders....

[deleted]

Re: Robinhood reports 43% revenue decline

#203

Post by gruez »

SilasX wrote: post #198
deschutes wrote: post #196

Earlier quoted context omitted.

Here's what I gather from that thread. The bottom line is that the retail trader stays whole in the case the trade fails to clear. If the broker was allowed to use the retail trader's money for collateral it would either not really be collateral or it would be at risk of being forfeit. You can't have it both ways.

But that wouldn’t make sense as being a constraint that the Robinhood’s upstream counterparties would demand, since the collateral is purportedly to protect them . No one has ever argued this point in terms of “oh we just wanted to make sure no one took your money without giving shares”, or, if they did, they are really bad at communication. Edit: note that this other authoritative explanation claims the failure mode…

Here's a concrete example why that rule might be wanted:

1. Clearinghouse member A buys 1000 shares at $200 each, costing a total of $200k. On the day of trade (not settlement) they put up $20k in collateral.

2. Clearinghouse member B buys 2000 shares at $200 each, costing a total of $400k. On the day of trade (not settlement) they put up $40k in collateral

3. Something bad happens. The price of the stock drops to $150, and clearinghouse member A goes bankrupt. They're supposed to pay $200k for the shares they bought, but they can't and those shares are now worth $150k, so they owe the clearinghouse $50k. They only put up $20k in collateral so there's a $30k shortfall.

4. The clearinghouse somehow socializes the losses, presumably using some of the collateral from member B to make up the deficit. Now member B is short $30k.

For a small amount they might be able to cover it out of pocket, but if it was sufficiently large they won't be able to. In that case the net result is that the customer had their funds seized (because their funds were used for the clearinghouse collateral) but their brokerage can't pay for the stock. Forcing the brokerage to use their own funds prevents this problem. The brokerage and their creditors might still lose money, but their customers shouldn't be affected.

Re: Robinhood reports 43% revenue decline

#204

Post by MrMan »

Denvercoder9 wrote: post #108
dragontamer wrote: post #105

Earlier quoted context omitted.

Personally speaking, I blame the customers. They are paying for $0 trades to a very, very small trading firm with well-known trade-execution problems months / years before the GME instance. No serious trader actually trusted Robinhood, and nobody was surprised when Robinhood's trading ability was shown to be so weak in that timeframe. There were many respectable banks with much stronger finances who were able to supp…

IB might not be the best example, as they also restricted GME option trading to liquidation only.

I think many brokers had these restrictions, so what is the point of this discussion

Re: Robinhood reports 43% revenue decline

#205

Post by bpicolo »

bombcar wrote: post #153
bpicolo wrote: post #118

Earlier quoted context omitted.

You used to be able to move funds into vanguard + purchase in a single submission in Vanguard (though clearly multiple steps on their end). The new app seems to only offer sending money to money market settlement, before waiting two days to transact. A real pain of a change, unless I'm missing a way to do it.

At least via the web interface for Vanguard the way I do it is start with a buy order, and then when it says "where funded" hit "new deposit" or whatever it is. They then let me buy whilst the money is inflight.

Good to know the web still allows it - will do that in the future. Thank you!

Re: Robinhood reports 43% revenue decline

#206

Post by chii »

Denvercoder9 wrote: post #171
f-securus wrote: post #157

Earlier quoted context omitted.

If a broker that handles a very large portion of retail trades suddenly blocks purchasing a security that retail trading has driven the price up then it stops retail pressure and the stock price will obviously drop.... you could say Robinhood cost retail money by removing the upward pressure on the stock. The SEC report on the incident mentions the price rise was mostly due to retail FOMO, and not the suspected short…

The problem with this analysis is that Robinhood didn't choose to block buy orders, they were forced to because they were no longer able to fulfill them. You can argue about whether Robinhood should've been better prepared for the volatility that arose (and that could be an interesting conversation by itself), but they weren't. GP claims "they shouldn't have done it", but continuing wasn't an option. The only other c…

it might have made robinhood look better to uninformed retail traders if they disabled both the sell button as well as the buy button.

Re: Robinhood reports 43% revenue decline

#207

Post by WoahNoun »

BigBubbleButt wrote: post #132
dragontamer wrote: post #124

Earlier quoted context omitted.

> Market halts are completely different from what we are discussing I'm not talking about market halts. I'm saying when all the buy-orders vanish from the marketplace, it results in a "flash crash". Hitting the "sell" button will do really weird things at these times. After all, a "sell" can only mechanically happen if the market pairs you up with a "buy". That's just how the stock market works. If there's no buyers,…

Then what you're saying makes even less sense. Because what happened with Robinhood is they turned off the buy button, but still people could sell (which means there were buyers from other brokers or outside retail). I realize every buy needs a sell. I also said "typically" and considering there obviously were buyers since you could still sell, everything you're saying is irrelevant to the discussion we had about GME…

>Because what happened with Robinhood is they turned off the buy button, but still people could sell (which means there were buyers from other brokers or outside retail)

No, RH matched the sell order with an internal buy order and netted them out to reduce their collateral requirements over the T+2 settlement period. They didn't use cash to buy stock from other brokerages.

Re: Robinhood reports 43% revenue decline

#208

Post by SilasX »

gruez wrote: post #203
SilasX wrote: post #198

Earlier quoted context omitted.

But that wouldn’t make sense as being a constraint that the Robinhood’s upstream counterparties would demand, since the collateral is purportedly to protect them . No one has ever argued this point in terms of “oh we just wanted to make sure no one took your money without giving shares”, or, if they did, they are really bad at communication. Edit: note that this other authoritative explanation claims the failure mode…

Here's a concrete example why that rule might be wanted: 1. Clearinghouse member A buys 1000 shares at $200 each, costing a total of $200k. On the day of trade (not settlement) they put up $20k in collateral. 2. Clearinghouse member B buys 2000 shares at $200 each, costing a total of $400k. On the day of trade (not settlement) they put up $40k in collateral 3. Something bad happens. The price of the stock drops to $1…

I don't know what that has to do with a customer who put up (100% of) $10k to buy $10k of stock and is prevented by their broker from backing out.

Re: Robinhood reports 43% revenue decline

#209

Post by SilasX »

deschutes wrote: post #199
SilasX wrote: post #198

Earlier quoted context omitted.

But that wouldn’t make sense as being a constraint that the Robinhood’s upstream counterparties would demand, since the collateral is purportedly to protect them . No one has ever argued this point in terms of “oh we just wanted to make sure no one took your money without giving shares”, or, if they did, they are really bad at communication. Edit: note that this other authoritative explanation claims the failure mode…

It makes perfect sense for a regulation that intends to protect the retail customer's interests. I suspect Robinhood would put customer money up for collateral if they were allowed to do so.

What is that responding to? The problem is the lack of a consistent threat model for whom you're protecting and what you're protecting them from. Half the time it's "the consumer could reneg on the purchase" and half the time it's "the shares could be stoken from the consumer". And 100% of the time, the super-confident, I-get-this-and-you-don't explainer doesn't realize the inconsistency.

Re: Robinhood reports 43% revenue decline

#210

Post by gruez »

SilasX wrote: post #208
gruez wrote: post #203

Earlier quoted context omitted.

Here's a concrete example why that rule might be wanted: 1. Clearinghouse member A buys 1000 shares at $200 each, costing a total of $200k. On the day of trade (not settlement) they put up $20k in collateral. 2. Clearinghouse member B buys 2000 shares at $200 each, costing a total of $400k. On the day of trade (not settlement) they put up $40k in collateral 3. Something bad happens. The price of the stock drops to $1…

I don't know what that has to do with a customer who put up (100% of) $10k to buy $10k of stock and is prevented by their broker from backing out.

Because there are two distinct layers to the system, the clearinghouse to its members, and its members (brokerages) to their customers. All the clearinghouse cares about is that the member can put up the collateral on the day of trade, and on the day of settlement they show up with the rest of the money. Whether the clearinghouse member's customer paid for their stock in cash or on margin doesn't concern them. There isn't a mechanism for robinhood (or any other brokerage) to tell the clearinghouse "hey this trade is 100% good because the customer is buying it with settled cash in his account, so waive the collateral requirement".

I think what you're trying to ask is that if clearinghouse somehow knew that a given buy order would be good (ie. was paid with settled cash), then this whole fiasco wouldn't have occurred. That's true, and that's essentially what T+0 settlement is (ie. you have to come up with all the money on the day of trade).

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